The ST & SC Development Department, Government of Odisha has introduced an innovative

education programme for the students appearing in +2 Science and Commerce examination
pursuing studies in the ST & SC Development Department Schools (EMRS & HSS) to ensure
quality education at +2 level. In this regard it is to mention that an Academic Performance
Monitoring Cell (APMC) has been set up in SCSTRTI to monitor the Training and Capacity
Building of Teachers of SSD Higher Secondary Schools and Ekalavya Model Residential
Schools (EMRS) to enhance quality education for better performance of the students
appearing +2 Science and Commerce examination.
Since March 2020 due to Covid-19 Pandemic Situation, the state government has closed all
the HSS & EMRS and online classes were going on. The CBSE & CHSE Board were unable to
conduct the offline examinations in 2020 and 2021. Since a few months, offline classes are
going on. To combat the situation, the CBSE & CHSE Boards have introduced alternate
comprehensive examination patterns such as 1st and 2nd Term End Examinations and Quarter
End Examinations etc. to be operative from 2021-22 academic session. Accordingly the
Question patterns have completely being changed by both Boards.
To face this situation, the APMC has designed Workbook-Cum-Question Bank with Answers
as per the new direction of the Boards. The best of subject experts have been roped to
formulate self-contained and self-explanatory “Workbook-Cum-Question Bank with
Answers” as per the new pattern of examinations of CHSE & CBSE Boards. They have tried to
make the material as far as activity based and solution based as feasible.
I would like to extend my sincere thanks to Prof. (Dr.) A. B. Ota, Advisor-Cum-Director and
Special Secretary, SCSTRTI. I would also like to thank Dr. S. C. Das, SLPM, APMC and the team of
subject experts for their sincere effort in bringing out the Question Bank in a very short time.
The Workbook-Cum-Question Bank with Answers will cater to the needs of students during
this pandemic situation and will be extremely useful for students of Science and Commerce of
CBSE and CHSE to face the new pattern of examination, as these are designed accordingly.

Ranjana Chopra
Principal Secretary
ST & SC Development Department
Govt. of Odisha
An innovative education programme has been initiated by setting up an Academic Performance
Monitoring Cell (APMC) in Scheduled Castes and Scheduled Tribes Research and Training
Institute (SCSTRTI) to monitor the Training and Capacity Building of Teachers of SSD Higher
Secondary Schools and Ekalavya Model Residential Schools (EMRS) and to ensure quality
education of students studying at +2 level under the administrative control of the ST & SC
Development Department.
Due to Covid-2019 pandemic situation, all the schools under administrative control of ST & SC
Development Department are closed since March 2020. As a result different Boards were not
able to conduct offline examinations in 2020 and 2021. As an alternative, CBSE Board and CHSE
Board have made comprehensive examination patterns in the form of 1st & 2nd Term End and 3rd
Quarter End examinations respectively to be followed from 2021-22 academic session.
The present situation demands to fullfill the desire of students and designed new pattern of
questions, which will cater to the need of students to face the examinations boldly without any
fear and nervousness. The APMC under the banner of SCSTRTI has taken the initiative to
prepare Workbook-Cum-Question Bank with Answers in Physics, Chemistry, Biology (Botany
& Zoology), Mathematics, Information Technology / Computer Science, English and Odia of
Science stream and Business Mathematics and Statistics, Business Studies and Management,
Accounting, Cost Accountancy, Fundamentals of Management Accounting, Fundamentals of
Entrepreneurship, Banking & Insurance etc. of Commerce stream as per the new pattern of
questions to be adopted in both CBSE and CHSE Boards and prepared books separately.
The subject experts, who are the best in their respective subjects in the state have been roped in
for this exercise. They have given their precious time to make the new pattern of Question Bank
as activity and solution based as per the direction of both CBSE and CHSE Boards.
I hope this material will be extremely useful for the students preparing for the +2 examination
in different subject of Science and Commerce streams.

Prof. (Dr.) A. B. Ota

Advisor-Cum-Director & Special Secretary
SCSTRTI, Govt. of Odisha
 CONTENTS
Sl. Group Topics Page
No. No.

1. GROUP - A OBJECTIVE TYPE QUESTIONS

(A) MCQ Type Question with Answers 01-31

(B) Express / Answer in One Word / Term Each 32-37

(C) Answer in One Sentence Each 38-45

(D) Fill up the Gaps 46-51

2. GROUP - B SHORT TYPE QUESTIONS

(A) Short Questions to be Answered (2 Marks Each) 52-80

(B) Short Questions to be Answered (3 Marks Each) 81-109

3. GROUP - C LONG TYPE QUESTIONS

(A) Long Questions with Answers 110-143

***
 GROUP - A
OBJECTIVE TYPE QUESTIONS
UNIT - I
(A) Financial Statements of Sole Trade Organisations

A. From the following alternatives given under each bit, write serially
the correct answer along with its serial number against each bit:

1. Revenue expenditure gives the 5. Income tax paid by the business

benefit for :
should be:
(a) Previous year
(a) Credited to the capital account
(b) Current year
(c) Future year (b) Debited to capital account

(d) First two years only (c) Credited to drawing account

2. Land and building of business is (d) Debited to profit and loss account
known as:
6. Carriage inward is shown on:
(a) Fixed asset
(a) Debit side of trading account
(b) Intangible asset
(c) Current asset (b) Credit side of trading account

(d) Floating asset (c) Debit side of Profit and loss

3. We receive benefit from capital account
expenditure during:
(d) Credit side of Profit and loss
(a) Current year only
account
(b) Previous year only
7. Carriage outward is shown on:
(c) Over a number of years
(d) Less than one year (a) Debit side of trading account

4. Profit on sale of old machine is (b) Credit side of trading account

credited to:
(c) Debit side of Profit and loss
(a) Trading account
account
(b) Profit and Loss account
(d) Credit side of Profit and loss
(c) Manufacturing account
account
(d) Balance Sheet
// 1 //
8. Heavy advertisement expenditure is: 13. Balance-sheet reveals:

(a) Revenue expenditure (a) Balance of Gross profit

(b) Balance of Net profit
(b) Capital expenditure
(c) Financial position of business
(c) Deferred revenue expenditure
(d) Balances of ledger accounts
(d) Revenue loss
14. An example of intangible asset is:
9. Wages paid on installation of machine (a) Plant and machinery
is (b) Furniture and fixture
(a) Revenue expenditure (c) Mines
(b) Capital expenditure (d) Goodwill
15. Income received in advance is:
(c) Deferred revenue expenditure
(a) Asset (b) Expenses
(d) Revenue loss
(c) Liability (d) Income
10. Return inward is deducted from:
16. Accrued income is:
(a) Purchase account (a) Asset (b) Liability
(b) Sales account (c) Income (d) Expense
(c) Net profit 17. Prepaid expenses is:

(d) Capital (a) Current asset

11. Expenditure on goods manufactured (b) Current liability

is: (c) Intangible asset

(d) Fixed asset
(a) Capital expenditure
18. Outstanding expense is an example
(b) Revenue expenditure
of:
(c) Deferred Revenue expenditure (a) Current asset
(d) Capital loss (b) Current liability
12. Closing stock recorded in trial (c) Intangible asset
balance is transferred to: (d) Fixed asset

(a) Only Trading account 19. Which of the following is not

recorded in the Balance-sheet?
(b) Only profit and loss account
(a) Current asset
(c) Only Balance-sheet
(b) Contingent liability
(d) Both Trading account and (c) Intangible asset
Balance-sheet (d) Fixed asset
// 2 //
20. Which of the following will not be 25. Expenditure on construction of
deducted from capital? cycle shed is:

(a) Income Tax (a) Capital expenditure

(b) Drawing (b) Revenue expenditure

(c) Deferred Revenue expenditure
(c) Net loss
(d) Recurring expenditure
(d) Interest on loan
21. Prepaid insurance which appears in 26. Which of the following is not a
revenue receipt?
the Trial Balance is shown in:
(a) Commission received
(a) Balance sheet and Profit and loss
(b) Cash sales
account
(c) Discount received
(b) Profit and loss account only
(d) Sale of old plant
(c) Trading account and Balance
27. Bad debts is deducted from:
Sheet
(a) Drawings (b) Net Profit
(d) Balance-sheet only
(c) Debtors (d) Creditors
22. An example of fictitious asset is:
28. Outstanding wage is a:
(a) Copy rights
(a) Nominal Account
(b) Patent rights
(b) Personal Account
(c) Furniture
(c) Representative Personal Account
(d) Preliminary expenses (d) Real Account
23. Goodwill is:
29. A manager is entitled to a
(a) Current asset commission of 10% on net profit of
(b) Liquid asset 3,30,000 after changing such

(c) Intangible asset commission is :

(d) Fictitious asset (a) 33,000 (b) 30,000

(c) 32,000 (d) 31,000
24. Out of the following which one is the
most liquid asset? 30. A manager is entitled to a
commission of 10% on net profit of
(a) Sundry debtors
4,50,000 before changing such
(b) Inventory
commission is:
(c) Prepaid Insurance
(a) 40,000 (b) 45,000
(d) Cash (c) 50,000 (d) 42,000

// 3 //
31. Closing stock is shown in final 36. Rent paid during the year 5,500.
account at: Rent outstanding 500. The amount
(a) Cost Price to be shown in Balance-sheet is :
(b) Market Price (a) 5,500 (b) 6,000
(c) Cost or market price whichever is (c) 500 (d) 5,500
higher
37. The cost price of closing stock is
(d) Cost or market price whichever is
55,000. The market price of closing
lower
stock is 60,000. The amount of
32. Indirect expenses are shown in:
stock to be shown in trading
(a) Trading Account
account is:
(b) Profit and Loss Account
(a) 55,000 (b) 60,000
(c) Balance-sheet
(c) 57,000 (d) 58,000
(c) Profit and Loss Account & Balance-
38. In the trial Balance written loan
sheet
50,000 (Cr) taken on 1.10.21.
33. Direct expenses are shown in:
Amount to be written in Profit
(a) Trading Account
and Loss Account if rate of interest
(b) Profit and Loss Account
is 10%:
(c) Trading Account and Balance-
sheet (a) 5,000 (b) 10,000

(d) Balance-sheet (c) 2,500 (d) 4,500

34. Marshalling of Balance-sheet 39. Business man gives from his stock,
means: goods as charity. Name of Account
(a) Arranging assets only to be credited is:
(b) Arranging liabilities only (a) Drawing account
(c) Arranging both assets and (b) Charity account
liabilities (c) Purchase account
(d) Totalling of assets and liabilities (d) Sales account
35. Goods distributed as free sample is
40. Contingent liability
credited to:
(a) will be paid during current year
(a) Advertisement Account
(b) will be paid during future year
(b) Profit and Loss Account
(c) will not be paid at all
(c) Purchase Account
(d) Sales Account (d) may or may not be paid

// 4 //
B. Financial Statements of Not for Profit Organisations
1. The objectives of a not for Profit 6. Income and Expenditure Account
organisation is to: is a:
(a) work with profit motive
(a) Personal Account
(b) provide service free of cost
(b) Real Account
(c) work without profit motive
(d) all the above (c) Nominal Account
2. Out of the following which is a "not (d) Representative Personal Account
for profit" organisation:
7. Income and Expenditure Account is
(a) Reliance Industries Ltd.
prepared by:
(b) J. K. Tyre Ltd.
(c) Tata Steel Ltd. (a) Trading Organisations

(d) Ramakrishna Mission Charitable Trust (b) Manufacturing Organisations

3. Receipt and payment account
(c) Not for Profit Organisations
is a :
(d) Both Manufacturing and Trading
(a) Personal Account
Organisations
(b) Real Account
(c) Nominal Account 8. Income and Expenditure Account
(d) Cash Account shows:
4. Receipt and Payment Account (a) Net Profit/ Loss
shows:
(b) Cash-in- hand and Bank
(a) Receipt of cash and payment
in cash (c) Surplus/ Deficit
(b) Bank Balance (d) Balance of Assets
(c) Cash Balance
9. Income and Expenditure Account is
(d) Capital Fund
the other name of:
5. Receipt and Payment account
(a) Trading Account
revels:
(a) Surplus/ Deficit (b) Profit and Loss Account

(b) Net Profit / Loss (c) Profit and Loss Appropriation

(c) Cash Balance Account

(d) Balance of Asset (d) Balance Sheet

// 5 //
10. Income and Expenditure Account 16. Sales of Grass in case of sports club is:
contains: (a) Capital Receipt
(a) Capital Items (b) Revenue Receipt
(b) Revenue items (c) Revenue Loss
(c) Both Capital and Revenue items (d) An Asset
(d) None of the above 17. Sale of old newspaper is a/an:
11. Subscription received in advance (a) Revenue Receipt
is:
(b) Capital Receipt
(a) Asset
(c) Capital or Revenue Receipt
(b) Liability
(d) Revenue Expenditure
(c) Income
18. Which of the following items is
(d) Expenses added to the capital fund?
12. Subscription outstanding at the end (a) Deficit (b) Surplus
of the year is:
(c) Expenses (d) Income
(a) An asset (b) A liability
19. The day to day transactions are
(c) An Income (d) A expense
recorded in:
13. Donation received for specific
(a) Trial Balance
purpose is:
(b) Income and Expenditure Account
(a) Revenue Receipt
(c) Cash Book
(b) Capital Receipt
(d) Receipt and Payment Account
(c) Revenue expenditure
20. The difference between assets and
(d) Capital expenditure
liabilities of opening balance-sheet is:
14. Life membership fees is a/an:
(a) Surplus
(a) Revenue expenditure
(b) Capital Fund
(b) Capital Expenditure
(c) Reserve Fund
(c) Capital Receipt
(d) Deficit
(d) Revenue Receipt
21. Not for profit organisations prepare:
15. Legacy may be treated as:
(a) Manufacturing Account
(a) Revenue Receipt
(b) Capital or Revenue Receipt (b) Profit and Loss Account

(c) Revenue Income (c) Profit and Loss Appreciation Account

(d) Capital Income (d) Income and Expenditure Account

// 6 //
22. General donation is treated as: 26. Subscription received during the year
50,000. Subscription received in
(a) Revenue Income
advance in the beginning of the year
(b) Capital Income 2,000. Subscription outstanding at the
(c) Revenue income if it is small end of the year 3,000. Amount credited
amount to Income and Expenditure Account is:

(d) Both Revenue and Capital Income (a) 50,000

(b) 48,000
23. Receipt and Payment Account is
prepared from: (c) 53,000

(d) 51,000
(a) Subsidiary Books

(b) Income and Expenditure Account 27. The position of a club in the beginning
of the year is : Asset 11,50,000,
(c) Cash Book
Liability 3,50,000 , Credit Balance
(d) Balance-Sheet
of Income and Expenditure Account

24. A club purchased an A.C for 40,000. 30,000. The opening capital fund is:

Spent 2,000 for a stabilizer, 1,000 (a) 8,00,000

for electric fitting. The A.C cost to be (b) 8,80,000
capitalised is:
(c) 11,20,000
(a) 40,000 (b) 42,000
(d) 7,70,000
(c) 43,000 (d) 41,000
28. The opening balance of prize fund
25. Salaries paid during the year of Agnee Sports Club was 55,000.
40,000. Salaries outstanding in the Further donation received during
beginning of the year 5,000. Salary the year 20,000. Interest on
prepaid at the end of the year is ? investment received 5,000. Prize
1,000. Amount to be charged to distributed 10,000. The closing
salary account is: balance of prize fund is:

(a) 40,000 (b) 45,000 (a) 75,000 (b) 70,000

(c) 41,000 (d) 34,000 (c) 80,000 (d) 65,000

// 7 //
 UNIT-II
A. Accounting for Depreciation
1. Depreciation is the permanent 6. Under the diminishing balance
decreases in the value of asset due to method, the amount of depreciation:
(a) fall in the market value (a) Increases every year
(b) fall in the technical value
(b) Decreases every year
(c) use and lapse of time
(c) Remains constant
(d) fall in the value of money
(d) Both increases and decreases
2. Depreciation is charged on:
7. Depreciation is a/an:
(a) current assets
(b) fixed assets (a) income (b) loss

(c) fictitious assets (c) asset (d) liability

(d) liquid asset 8. Depreciation is charged to:
3. The main objective of depreciation (a) Trading Account
is to:
(b) Profit and Loss Account
(a) ascertain true profit/ loss
(c) Profit and Loss Appropriation
(b) replace the fixed asset
Account
(c) determine the cost of production
(d) Profit and Loss Adjustment Account
(d) all of these
9. Profit on sale of machinery should
4. Depreciation is calculated on the
be credited to:
basis of:
(a) cost price (a) Profit and Loss Account

(b) market price (b) Trading Account

(c) cost or market price whichever (c) Profit and Loss Appropriation
is less Account
(d) average of cost and market price (d) Provision for depreciation Account
5. Under straight-line method of
10. The cost of the plant is 50,000.
depreciation, the amount of annual
Depreciation is provided @10% p.a.
depreciation:
on written down value method. The
(a) Increases every year
depreciation for 3rd year will be:
(b) Decreases every year
(c) Remains constant (a) 5000 (b) 4000

(d) Both increases and decreases (c) 4500 (d) 4050

// 8 //
11. If the cost of the asset is 31,000 and 16. Depreciation is a process of:
scrap value is 1,000; then the (a) Valuation of asset
amount of depreciation @ 10 % p.a. (b) Allocation of cost of asset
on written down value method for (c) Amortisation of the asset
the 2nd year will be
(d) Dilapidation of Asset
(a) 3000 (b) 2790
17. In Furniture Account, depreciation
(c) 3100 (d) 2700
charged is shown:
12. Which one of the assets given (a) On the debit side
below is presumed not to be (b) On the credit side
depreciated:
(c) As closing balance
(a) Plant (b) Machinery (d) As opening balance
(c) Land (d) Mine
18. Under which method of depreciation,
13. The amount of depreciation charged a fixed amount of depreciation is
against asset will be debited to: charged:

(a) Machinery Account (a) Straight line method

(b) Furniture Account (b) Reducing balance method

(c) Depreciation Account (c) Either straight line method or

Reducing balance method
(d) Profit and Loss Account
(d) Both straight line method and
14. The term 'depletion' is used in
Reducing balance method
relation to:
19. Loss on sale of machinery is shown:
(a) Fixed Assets
(a) Debit side of machinery account
(b) Wasting Assets
(b) Credit side of machinery account
(c) Current Assets
(c) Debit side of depreciation account
(d) Intangible Assets (d) Credit side of depreciation account
15. Depreciation involves a: 20. The main objective of providing
(a) Cash expense depreciation is:
(a) To reduce Income tax payable
(b) Non-cash expense
(b) To ascertain the true profit
(c) Both of these
(c) To know the true financial position
(d) None of these (d) All the above

// 9 //
21. Straight line method of charging 26. Provision is created for a:
depreciation is also known as: (a) Known liability
(a) Original Cost method (b) Unknown liability
(b) Fixed Instalment method (c) Contingent liability
(c) Annual Instalment method (d) All the above
(d) All the above 27. Factors considered for calculation
22. Depreciation account is a: of depreciation is:

(a) Personal account (a) Total cost of the asset

(b) Real account (b) Estimated useful life of the asset
(c) Nominal account (c) Estimated scrap value of the asset
(d) Representative Personal
(d) All the above
23. Which method of depreciation is
28. On purchase of asset, account to be
approved by income tax authorities?
debited is:
(a) Straight line method
(a) Purchase account
(b) Reducing balance method
(b) Asset account
(c) Either straight line method or
Reducing balance method (c) Goods account

(d) Straight line method and Reducing (d) Profit and loss account
balance method 29. Depreciation is calculated from the
24. Which of the following is the cause date of:
of depreciation? (a) Purchase of asset
(a) Constant use (b) Receipt of asset at business
(b) Pass of time premises
(c) Obsolescence (c) Asset put to use
(d) All the above (d) Installation of asset
25. Depreciation on diminishing 30. Depreciation charged at the end of
balance method on a machine of the year will be credited to:
20,000 @ 10% p.a. at the third year
(a) Depreciation account
shall be:
(b) Asset account
(a) 14,580 (b) 1,458
(c) Goods account
(c) 16,200 (d) 1,620 (d) Profit and loss account

// 10 //
 B. Accounting from Incomplete Records (Single Entry System)

1. The name single entry system is 5. Incomplete records are generally

introduced into accounting prepared by:
because of/ for: (a) Company (b) Sole trader
(a) Only one aspect of each
(c) Government (d) Banks
transaction is recorded
6. The other name of incomplete
(b) Only the debit aspect of the
records is:
transaction is recorded
(a) Single entry
(c) Every transaction is recorded in
cashbook (b) Multiple entry

(d) Incomplete records (c) Complete records

2. Under the single entry system, it is (d) Full entry

not possible to prepare trial balance: 7. The opening balance of capital can
(a) Because only debit aspect of a be ascertained by preparing:
transaction is recorded (a) Capital Account
(b) Unless missing items are (b) Opening balance sheet
ascertained
(c) Opening statement of affairs
(c) Because only one aspect of a
(d) Cash Account
transaction is recorded
8. The closing balance of the capital
(d) None of these
can be ascertained by preparing:
3. When adjusted closing capital is
(a) Capital account
greater than opening capital, it
denotes: (b) Closing balance sheet
(a) Profit (c) Closing statement of affairs
(b) Loss (d) Cash Account
(c) Neither profit nor loss 9. Adjusted closing capital is:
(d) At times profit, At times loss (a) Opening capital – Additional
4. When adjusted closing capital is Capital – Drawings
less than opening capital, it (b) Opening capital + Additional
denotes: Capital + Drawings
(a) Profit (c) Opening capital + Additional
(b) Loss Capital – Drawings
(c) Neither profit nor loss (d) Opening capital - Additional
(d) At times profit, At times loss Capital + Drawings

// 11 //
10. In case of net worth method of 14. The process of maintaining records
single entry, profit of the business under single entry system is:
can be ascertained by preparing: (a) Uniform
(a) Trading Account and Profit and (b) Not uniform
Loss Account
(c) As per prescribed method
(b) Statement of affairs at the beginning
(d) None of these
and at the end of the project
15. In single entry system of accounting,
(c) Balance sheet at the beginning
it is not possible for:
and at the end of the period
(a) Checking arithmetic accuracy
(d) None of these method
(b) Ascertaining true profit
11. Under the single entry system of
book-keeping which accounts are (c) Internal check
maintained: (d) All of these
(a) Personal Accounts 16. Under single entry system, one has
(b) Real Accounts to depend on:

(c) Real & Nominal Accounts (a) Cash and personal transactions

(d) All Accounts (b) Cash transactions

12. Under the single entry system of (c) Personal Accounts

accounting, arithmetical accuracy: (d) Original vouchers
(a) Can be checked 17. Statement of affairs is prepared on
the basis of:
(b) Cannot be checked
(a) Trial Balance
(c) Can be checked by converting the
incomplete records to complete (b) Some ledger accounts and
records estimates

(d) May or may not be checked (c) Cash book only

13. Under the single entry system, true (d) Personal accounts only
value of the business cannot be 18. Statement of affairs is prepared
determined due to the absence of: always at the:
(a) A precise balance sheet (a) End of the year
(b) A statement of affairs (b) Beginning of the year
(c) A profit and loss account (c) Either at the end or beginning of
(d) Trading and Profit and Loss the year
account (d) Middle of the year

// 12 //
19. Under single entry system, there is: 22. In absence of introduction of fresh
(a) No scope of manipulation of capital, when closing capital is more
accounts than the opening capital, it indicates:

(b) Scope for manipulation of accounts (a) Profit

(c) Little scope for manipulation of (b) Loss

accounts (c) No Profit and No Loss
(d) Sometimes no scope f or (d) All the above
manipulation of accounts 23. From the incomplete records, it is
20. Under the single entry system, not always possible to prepare:
double entry is followed: (a) Trial Balance
(a) Fully (b) Balance –Sheet
(b) Partially (c) Ledger
(c) In a half- hazard manner (d) None of the above
(d) All of these 24. Generally, which of the following
21. Capital at the end of the period can account is maintained under single
be ascertained by preparing: entry system:
(a) Capital account (a) Expenses Account
(b) Closing balance sheet (b) Income Account
(c) Closing statement of affairs (c) Cash Account
(d) Cash Account (d) Asset Account

// 13 //
 UNIT-III
A. Accounting for Partnership Firm

1. Indian Partnership Act was enacted 5. The liability of a partner is:

in the year: (a) Unlimited

(a) 1956 (b) 1932 (b) Limited

(c) Limited by guarantee
(c) 1912 (d) 2013
(d) Limited up to their capital
2. The maximum number of partners
6. A partner and his business exists:
in a banking business is:
(a) Independently
(a) Two (b) Seven
(b) Together
(c) Twenty (d) Ten
(c) For others
3. In the absence of an agreement
(d) For creditors
profit and losses are divided by
7. Partner's current accounts are
partners in the ratio of:
opened when their capital accounts
(a) Capital are:

(b) Drawings (a) Fluctuating

(b) Fixed
(c) Capital less drawings
(c) Either Fixed or Fluctuating
(d) Equality
(d) None of these
4. In the absence of an agreement to
8. The current accounts of a partner:
the contrary, partners are:
(a) Will always have a credit balance
(a) Entitled to 6% interest on loans to (b) Will always have a debit balance
firm, only when there is profit
(c) May have a debit or credit balance
(b) Entitled to 6% interest on loans (d) None of these
to firm whether there are profits 9. Interest on capital of partners if
or not allowed, will be paid:
(c) Not entitled to any interest on loans (a) Only out of profit
to firm (b) Only out of capital

(d) Entitled to 8% interest on loans to (c) Either out of profit or out of capitals
firm (d) None of these

// 14 //
10. Interest on partner's capital account 14. The purpose of preparing profit and
is to be credited to: loss appropriation account is:
(a) Partner's capital account
(a) Same with profit and loss account
(b) Interest account
(b) How profits have been utilised and
(c) Profit and loss account
distributed
(d) Profit and loss Adjustment account
(c) How salary is calculated
11. If interest allowed on capital, it is
calculated on the: (d) How interest on capital is calculated
(a) Capital at the end of the year 15. Partner's Capital Account and
(b) Capital at the beginning of the year Partner's Current Account are
(c) Capital at the end less drawings opened in the case of:

(d) Average capital (a) Fixed capital method

12. Profit and Loss Appropriation
(b) Fluctuating capital method
Account is prepared after the
preparation of: (c) Both of these

(a) Trading Account (d) None of these

(b) Profit and Loss Account
16. Under fluctuating capital account
(c) Manufacturing Account
method, the account maintained in
(d) Balance Sheet addition to Partner's Capital
13. The items appearing in the Profit and Account is:
Loss Appropriation Account are:
(a) Current Account
(a) Interest on capital
(b) Drawings Account
(b) Interest on drawings

(c) Salaries or commission to partners (c) Both of these

(d) All of these (d) None of these

// 15 //
 B. Goodwill
1. Goodwill is a/an: 7. Higher the degree of risk, the
(a) Tangible asset amount of goodwill is:
(b) Fictitious asset (a) More (b) Less
(c) Current assets (c) Equal to risk (d) None of these
(d) Intangible asset 8. Super profit is equal to:
2. The excess of actual profit over
(a) (Average Profit) ÷ (Normal rate of return)
normal profit is:
(b) (Average Profit) - (Normal Profit)
(a) Normal profit (b) Super profit
(c) Gross profit (d) Net profit (c) (Total Profit) ÷ (Number of years)

3. Profit for last three years were (d) (Weighted profits) ÷ (Number of weights)
26,000, 20,000 and 14,000; value
9. If super profit is 12,000 and normal
of goodwill at two years purchased
rate of return is 15%, the goodwill is:
of average three years profit will be:
(a) 20,000 (b) 35,000 (a) 75,000 (b) 1,20,000

(c) 30,000 (d) 40,000 (c) 80,000 (d) 88,000

4. Under capitalisation of super profit 10. Capital employed is:

method, goodwill is calculated by:
(a) Capital + free reserves - fictitious
(a) (Average Profit) × (Years of Purchase) assets (in any)
(b) (Super Profit) × (Years of Purchase)
(b) All assets- goodwill- fictitious
(c) (Super Profit) ÷ (expected rate of return) assets - non trade investments-
(d) Total of time value of expected future profit outsider's liability
5. When incoming partner pays for (c) None of these
goodwill in cash, the amount should
be debited to: (d) Both of these

(a) Cash amount 11. Normal profit is:

(b) Goodwill account (a) Total capital employed × actual rate of return
100
(c) Capital account of incoming partner
(b) Total capital employed × normal rate of return
(d) Capital account of existing partner
100
6. A firm enjoying monopoly over the
(c) Average capital employed × actual rate of return
products can have goodwill of:
100
(a) Higher value (b) Lower value
(d) Average capital employed × normal rate of return
(c) Medium value (d) Lowest value 100

// 16 //
 C. Reconstitution of Partnership

1. Reconstitution of partnership firm 7. P and Q are partners sharing profits

means: in the ratio of 3:2 and they admit R
(a) Change in the existing deed as a partner with 1/6th share. The
(b) Change in the place of business new profit sharing ratio is:
(c) No change in the existing deed (a) 2:2:2 (b) 3:2:1
(d) No change in the place of business (c) 4 : 3: 2 (d) 5: 3 : 2
2. Reconstitution of partnership firms 8. X and Y sharing profits in the ratio
is possible if: of 3 : 2 and admit Z as a partner with
(a) Some partner agree 1/6th share. The ratio of sacrificing
(b) All partners agree of X and Y is:
(c) At least one partner agrees (a) 3:2 (b) 2:3
(d) Majority partners agree
(c) 3:4 (d) 3: 5
3. The circumstances leading to
9. M and N sharing profits in the ratio
reconstitution of partnership firm is:
of 5: 3, admit O and their new profit
(a) Change is the profit sharing ratio sharing is fixed at 4: 2: 2. The ratio
(b) Admission of a new partner of sacrificing of M and N is:
(c) Retirement and/ or death of a partner
(a) 1:2 (b) 2:1
(d) All of these
(c) 1:1 (d) 5: 3
4. The profit on revaluation of assets
10. Increase in liability amounts to:
and liabilities are shared by:
(a) Old partners in the sacrificing ratio (a) Gain to old partners
(b) Old partners including new in new ratio (b) Loss to old partners
(c) Old partners in old profit sharing ratio (c) Neither gain nor loss
(d) Old partners equally (d) Gain to new partner
5. When assets are revalued, any 11. An old partner's Capital Account is
increase in the value of assets is debited when there is:
debited to: (a) Credit balance in profit and loss
(a) Profit and Loss Account account
(b) Profit and Loss Appropriation (b) Debit balance in the profit and loss
Account account
(c) Revaluation Account (c) General reserves
(d) Asset Account
(d) Workmen's Compensation Fund
6. A and B sharing profits in the ratio 12. Revaluation Account is a:
of 3:2, admit C as a partner with 1/5th (a) Real Account
share. The new profit sharing ratio is: (b) Personal Accounts
(a) 15: 7 : 3 (b) 12 : 8 : 5 (c) Nominal Account
(c) 12: 12: 6 (d) 12: 10 : 8 (d) Contingent Account

// 17 //
13. When all the partners including the 18. At the time of admission of new partner,
incoming partner decide not to if there appears goodwill in the books,
change the value of the assets and it is shared among the old partners in:
liabilities, they prepare: (a) Net profit sharing ratio
(a) Revaluation Accounts (b) Old profit sharing ratio
(b) Suspense Account (c) Sacrificing ratio
(c) Profit and Loss Adjustment Account (d) Equally
(d) Memorandum Revaluation Account
19. X, Y and Z are partners in a firm. If A
14. A, B and C are partners sharing profit
is to be admitted as a new partner:
and losses in the ratio of 4:3:1. They
(a) Old partnership is dissolved
agreed to share the future profits in
(b) Both old firm and partnership is
the ratio of 5 : 4: 3 . Who is to gain?
(a) A (b) B dissolved

(c) C (d) A and B (c) Old firm is dissolved

15. When C is admitted by taking 1/5th (d) Neither old firm nor partnership is

share from A, then the sacrifice of A is: dissolved

(a) 1/5 (b) 2/15 20. The balance of Memorandum

(c) 2/5 (d) 2/3 Revaluation Account (second part)
16. When the share of goodwill of a new is transferred to the capital
partner is brought in cash, it is accounts of the partners in:
shared by: (a) Capital ratio
(a) Old partners in old profit (b) Old profit sharing ratio
sacrificing ratio (c) Equally among all partners
(b) Old partners in sacrificing ratio (d) New profit sharing ratio
(c) Old partners in gaining ratio
21. The purpose of profit and loss
(d) All the partners in the new ratio
adjustment accounts is to find out:
17. A new partner may be admitted to
(a) Gross profit
the partnership:
(b) Net profit
(a) With the consent of all partners
(c) Financial position
(b) Without the consent of all partners
(c) With the consent of majority partners (d) Results of revaluation of assets
(d) With the consent of any one partner and liabilities

// 18 //
22. At the time of admission of a new 26. Increase in the liability is debited to:
partner, undistributed profit (a) Liability Account
appearing in the balance sheet of (b) Revaluation Account
old firm should be transferred to (c) Partner's Capital Accounts
capital accounts of: (d) Profit and Loss Appropriation
(a) Old partners in the old profit Account
sharing ratio
27. Increase in liability credited to:
(b) Old partners in the new profit
(a) Revaluation Account
sharing ratio
(b) Profit and Loss Appropriation
(c) All the partners in the new profit Account
sharing ratio
(c) Partner's Capital Accounts
(d) None of the above (d) Liability Account

23. Increase in the value of assets is 28. Decrease in the liability is debited to:
credited to: (a) Liability Account
(a) Realisation Account (b) Partner's Capital Accounts
(b) Revaluation Accounts
(c) Revaluation Account
(c) Partner's Capital Account
(d) Profit and Loss Appropriation
(d) Profit and Loss Appropriation
Account
Account
29. When goodwill is raised in the books
24. Decrease in the value of assets is
of the firm, it is credited to old
debited to:
partners' capital accounts at their:
(a) Realisation Account
(a) Old profit sharing ratio
(b) Partner's Capital Account
(b) New profit sharing ratio
(c) Profit and Loss Appropriation
(c) Sacrificing ratio
Account
(d) Gaining ratio
(d) Revaluation Accounts
30. When goodwill is written off, it is
25. Decrease in the liability is credited to:
debited to:
(a) Liability Account
(a) All partners' Capital Account
(b) Partner's Capital Accounts
(c) Revaluation Account (b) Old partner's Capital Account

(d) Profit and Loss Appropriation (c) New partner's Capital Account

Account (d) No partner's Capital Account

// 19 //
 D. Miscellaneous Questions
1. An old partners capital account 5. Interest payable on the capital of
debited, when there is: partners is charged to:
(a) Credit balance in profit and loss (a) Profit and Loss Account
Account (b) Profit and Loss Adjustment Account
(b) Debit balance in profit and loss (c) Profit and Loss Appropriation
Account Account
(c) General Reserve (d) Realisation Account
(d) Capital Reserve 6. Interest on partner's drawing is
2. The purpose of profit and loss debited to:
adjustment account is: (a) Partner's Capital account
(a) To find out gross profit (b) Profit and Loss Account
(b) To find out net profit (c) Drawing Account
(c) To know the financial position (d) None of these
(d) To find out results of revaluation of 7. The persons associated with
assets and liabilities partnership firm are known as:
3. The interest on capital account of (a) Partners
partners under fluctuating capital
(b) Active Partners
method is credited to:
(c) Dormant Partners
(a) Interest Account
(d) Partners by estoppel
(b) Profit and loss Account
8. The capital account of a partner:
(c) Partner's Capital Account
(a) will always have a credit balance
(d) Drawing Account
(b) will always have a debit balance
4. In the absence of any agreement to
the contrary, partners share profit (c) may have debit or credit balance
and losses in the: (d) None of the above
(a) Ratio of capital in the beginning 9. The basis of partnership is:
of the year (a) Old agreement
(b) Ratio of capital at the end of the year (b) Written agreement
(c) Ratio of average capital (c) Oral or written agreement
(d) Equal Ratio (d) None of the above
// 20 //
10. Revaluation account is credited by: 16. When a fixed amount is withdrawn
(a) The increase in value of assets on the last day of each month for a
(b) The decrease in value of assets period of 12 months, interest on
(c) The increase in amount of liability drawing is charged for:
(d) None of the above (a) 6 ½ months (b) 6 months
11. Revaluation account is debited: (c) 5 ½ months (d) 12 months
(a) For increase in amount of liability
17. Maximum number of partners in an
(b) For decrease in amount of liability ordinary partnership firms have:
(c) For increase in value of asset
(a) 10 partners
(d) None of the above
(b) 20 partners
12. Unrecorded Assets and liabilities
are recorded in: (c) 50 partners

(a) Revaluation Account (d) Any numbers of partners

(b) Profit and Loss Account 18. Which account is prepared by
(c) Profit and Loss Appropriation partnership firm for the distribution
Account of profits?

(d) None of the above (a) Profit and Loss Account

13. In absence of agreement, partners (b) Profit and Loss Appropriation

are not entitled to receive: Account

(a) Salaries (c) Income and Expenditure Account

(b) Commission (d) Drawing Account
(c) Interest on capital 19. Which of the following is not
(d) All the above recorded in partner's deed?

14. When dates of withdrawal are not (a) Name of the partners
mentioned, interest on drawing in (b) Address of the partners
charged for:
(c) Profit sharing ratio
(a) 6 ½ months (b) 6 months
(d) Balance in Personal account
(c) 5 ½ months (d) 12 months 20. A very common mean through
15. When a fixed amount is withdrawn which reconstitution takes place is:
on the 1st day of each month for a (a) Change in profit sharing ratio
period of 12 months, interest on
(b) Change in salary
drawing is charged for:
(c) Change in commission
(a) 6 ½ months (b) 6 months
(d) Change in capital account of partners
(c) 5 ½ months (d) 12 months
// 21 //
21. The ratio in which a partner 26. If at the time of admission of a
surrenders his share in favour of a partner, there is some unrecorded
partner is known as: asset, it will be:
(a) Gaining Ratio (a) Credited to Revaluation Account
(b) Capital Ratio (b) Debited to Revaluation Account
(c) Sacrifice Ratio (c) Credited to all Partner's Capital
Account
(d) New Profit sharing Ratio
(d) Debited to old Partner's Capital
22. Which of the following is not Account
recorded in revaluation account?
27. Accumulated profit at the time of
(a) Increase in value of stock
admission of new partner is
(b) Decrease in value of furniture
transferred to:
(c) Unrecorded asset (a) All Partners' Capital Account
(d) Increase in value of Goodwill (b) Old Partner's Capital Account
23. A new partner may be admitted in to (c) New Partner's Capital Account
partnership: (d) Revaluation Account
(a) With the consent of 2/3 of old partners 28. Accumulated losses at the time of
(b) With the consent of any one partner admission of a partner is:
(c) Without the consent of some old (a) Debited to all Partner's Capital
partners Account
(d) With the consent of all old partners (b) Debited to New Partner's Capital
Account
24. When a new partner does not bring
(c) Debited to Old Partner's Capital
his share of goodwill in cash, the
Account
amount to be debited is:
(d) Debited to Revaluation Account
(a) Capital Account of old partners
(b) Cash Account 29. Which of the following is debited to
Partner's Capital Account at the time
(c) Current Account of new partner
of admission of a new partner?
(d) Premium Account
(a) Accumulated Profit
25. If there is some unrecorded liability (b) Accumulated Loss
at the time of admission of a new (c) Profit of Revaluation
partner, it will be: (d) General Reserve
(a) Credited to Revaluation Account
30. Number of purchase year is used to
(b) Debited to Revaluation Account calculate:
(c) Transfer to all Partner's Capital (a) Gaining Ratio
Account (b) Sacrifice Ratio
(d) Credited to old Partner's Capital (c) Goodwill
Account (d) Loss on revaluation
// 22 //
 UNIT-IV
A. Accounting for Share Capital
1. Minimum number of shareholders 7. The equity shareholders of a
in a private limited company other company are:
than one person company is: (a) Debtors (b) Owners
(a) 7 (b) 2 (c) Creditors (d) Customers

(c) 50 (d) 20 8. Preference shareholders having no

2. Minimum number of shareholders right to share in the surplus left after
in a public limited company is: distribution to equity shareholders
are called:
(a) 7 (b) 2
(a) Non-participating preference
(c) 50 (d) 20
shareholders
3. Maximum number of shareholders (b) Non-convertible preference
in a public limited company is: shareholders
(a) 500 (b) 50 (c) Non-Cumulative preference
(c) Unlimited (d) 700 shareholders
(d) Irredeemable preference
4. Maximum number of shareholders
shareholders
in a private limited company is:
(a) 100 (b) 200 9. Preference shareholders have
preferential right to:
(c) 50 (d) Unlimited
(a) Received dividend
5. As per the Companies Act, 1956 the (b) Return of capital at the time of
minimum amount of paid up share
liquidation
capital of public limited company is:
(c) Both of the above
(a) 5 lakh (b) 2 lakh (d) Participate in the management
(c) 1 lakh (d) 10 lakh 10. The minimum paid up capital of one
6. The minimum amount of paid up Person Company should be:
share capital of a private limited
(a) 50,000
company as per the Companies
Act, 1956 is: (b) 90,000

(a) 5 lakh (b) 1 lakh (c) No mandatory requirement

(c) 2 lakh (d) 10 lakh (d) 1,00,000

// 23 //
11. The minimum share application 17. A private limited company:
money as per Companies Act is: (a) Can transfer shares
(a) 5 % of the nominal value of shares (b) Cannot transfer shares
(b) 10% of the nominal value of shares (c) Can transfer shares with the
(c) 25% of the nominal value of shares consent of other shareholders
(d) 25% of the issue price of shares (d) None of the above
12. When the excess application money 18. Securities premium cannot be
is to be adjusted towards allotment, utilised for:
the account to be credited is: (a) Issuing fully paid bonus shares
(a) Share application account (b) Writing off preliminary expenses
(b) Share capital account (c) Writing of discount on issue of
debentures
(c) Share allotment account
(d) Declaration of dividend
(d) Calls-in- advance account
19. Interest on calls-in- arrear is charged
13. According to Table F of the at a maximum rate when articles of
Companies Act, 2013 the maximum Association are silent:
amount of one call should not exceed: (a) 5% p.a. (b) 10% p.a.
(a) 5 % of the nominal value of shares (c) 12% p.a. (d) 6% p.a.
(b) 25% of the nominal value of shares 20. Interest on calls-in- advance is
(c) 25% of the issue price of shares payable by the company at:
(d) 10% of the nominal value of shares (a) 5% p.a. (b) 10 % p.a.
14. The account to be credited at the (c) 6% p.a. (d) 12% p.a.
time of allotment of shares: 21. The profit on reissue of forfeited
(a) Share allotment account shares is transferred to:
(b) Share application account (a) Capital reserve account
(b) General reserve account
(c) Bank account
(c) Capital redemption reserve account
(d) Share Capital account (d) Securities premium reserve account
15. A public limited company can raise 22. On the forfeiture of shares, the share
share capital by issuing: forfeiture account is credited with:
(a) Memorandum of Association (a) The amount not received on
(b) Prospectus shares forfeited
(c) Article of Association (b) The nominal value of shares
(d) Certificate of Incorporation forfeited
(c) The amount received on such
16. A shareholder gets: forfeited shares
(a) Dividend (b) Interest (d) The called up amount on the
(c) Salary (d) Commission shares forfeited

// 24 //
23. In the share of 10, issued at par, 8 28. When excess application money is
has been called up and 6 is paid, if to be adjusted towards allotment,
the share is forfeited the share the account to be credited is:
capital account is debited with:
(a) Share application account
(a) 10 (b) 8
(c) 4 (d) 6 (b) Share allotment account

24. If a share of 100 issued at a (c) Share capital account

premium of 20 is forfeited in (d) Calls-in-advance account
respect of which the full amount has
29. On allotment of shares, which
been called up and 80 (including
premium) is paid, the share capital account is credited?
is debited with: (a) Share application account
(a) 100 (b) 120 (b) Share allotment account
(c) 80 (d) 60
(c) Share capital account
25. The balance of share forfeiture
(d) Bank account
account in the Balance Sheet under
the head: 30. Amount of call-in-advance is:
(a) Share capital (a) Added to the share capital in the
(b) Current liabilities
Balance Sheet.
(c) Non- current liabilities
(d) Reserve and surplus (b) Deducted from the share capital
in the Balance Sheet.
26. Nominal share capital is:
(a) The amount of share capital (c) Shown on asset side of Balance
issued by a company Sheet.
(b) The amount of share capital (d) Shown on Equity and Liabilities
subscribed by a company
side of Balance Sheet.
(c) The amount of share capital
actually paid up by company 31. A company issued 20,000 shares of
(d) The maximum amount of capital 10 each for public subscription.
which a company is authorised to Public subscribed 18,000 shares on
issue which 8 per share was called up.
27. The part of share capital which can Amount received on 15,000 shares
be called up only in the event of is 8, per share and on balance 7
winding up of a company is known as: per share. The paid up capital of the
(a) Authorised capital
company is:
(b) Issued capital
(c) Subscribed capital (a) 1,44,000 (b) 1,41,000
(d) Reserve capital (c) 1,80,000 (d) 1,26,000

// 25 //
32. On forfeiture of shares, the account 36. Document required for issue of
to be debited is: share capital by a company is:

(a) Shareholder's account (a) Certificate of incorporation

(b) Prospectus
(b) Share forfeiture account
(c) Memorandum of Association
(c) Share capital account
(d) Article of Association
(d) Capital Reserve account
37. If a vendor is issued fully paid equity
33. Shares can be forfeited: shares of 5,00,000 for net asset of
(a) For not attending shareholder's 4,50,000, the balance of 50,000 will
meeting. be debited to:
(b) For not repaying bank loan taken (a) Profit and Loss Account
against the security of shares.
(b) Goodwill Account
(c) For not buying the product of the (c) Revenue Reserve Account
company.
(d) Capital Reserve Account
(d) For not paying allotment or call
money. 38. Premium on issue of shares is
shown at:
34. On forfeiture of shares, share capital
account is debited with: (a) Equity and Liabilities side
(b) Asset side
(a) The amount received on such
forfeited shares. (c) Credit side of statement of Profit
and Loss
(b) The amount not received on such
forfeited shares. (d) Credit side of Profit and Loss

(c) The nominal value of shares Appropriation statement.

forfeited.
39. A company can issue:
(d) The called up amount on forfeited (a) Five type of shares
shares.
(b) Two types of shares
35. X Ltd. forfeited 200 shares of 10
(c) Three types of shares
each on which 10 was fully called
up. The shareholder had paid 6 per (d) Four types of shares
share. The minimum price which the
40. Right issue of shares is issued to:
company must charge, if all the
forfeited shares are re-issued as (a) Directors
fully paid up is: (b) Employees
(a) 1,200 (b) 800 (c) Existing shareholders
(c) 2,000 (d) 1,000 (d) Public at large

// 26 //
 ANSWER KEYS
GROUP - A
A. From the following alternatives given under each bit, write serially
the correct answer along with its serial number against each bit:

UNIT-I 20. (d) Interest on loan

A. Financial Statements of Sole Trade 21. (d) Balance- Sheet only

Organisations 22. (d) Preliminary expenses
1. (b) current year 23. (c) Intangible asset
2. (a) Fixed Asset 24. (d) Cash
3. (c) Over a number of years 25. (d) Capital expenditure
4. (b) Profit and Loss Account 26. (d) Sale of old plant
5. (b) Debited to Capital Account 27. (c) Debtors
6. (a) Debit side of Trading Account 28. (c) Representative Personal Account
7. (c) Debit side of Profit and Loss 29. (b) 30,000
Account
30. (b) 45, 000
8. (c) Deferred Revenue Expenditure
31. (d) Cost price or market price
9. (b) Capital Expenditure whichever is lower
10. (b) Sales Account 32. (b) Profit and Loss Account
11. (b) Revenue Expenditure 33. (a) Trading Account
12. (c) Only Balance-sheet 34. (c) Arranging both assets and
13. (c) Financial position of business liabilities

14. (d) Goodwill 35. (c) Purchase Account

15. (c) Liability 36. (c) 500

16. (a) Asset 37. (a) 55,000

17. (a) Current asset 38. (c) 2,500

18. (b) Current Liability 39. (c) Purchase account

19. (c) Contingent Liability 40. (d) may or may not be paid

// 27 //
B. Financial Statements of Not for UNIT-II
Profit Organisations A. Accounting for Depreciation

1. (c) work without profit motive 1. (c) Use and lapse of time

2. (d) Ramakrishna mission charitable 2. (b) Fixed Assets

Trust 3. (d) All of these
3. (b) Real Account 4. (a) Cost Price
4. (a) Receipt and payment in cash 5. (c) Remains constant

5. (c) Cash Balance 6. (b) Decreases every year

6. (c) Nominal Account 7. (b) loss

7. (c) Not for Profit organisation 8. (b) Profit and Loss Account

8. (c) Surplus/ Deficit 9. (a) Profit and Loss Account

9. (b) Profit and Loss Account 10. (d) 4,050

11. (d) 2,790
10. (b) Revenue items
12. (c) Land
11. (b) Liability
13. (c) Depreciation Account
12. (a) An Asset
14. (b) Wasting Assets
13. (b) Capital Receipt
15. (b) Noncash expenses
14. (c) Capital Receipt
16. (b) Allocation of cost of Asset
15. (b) Capital or Revenue Receipt
17. (b) on the credit side
16. (b) Revenue Receipt
18. (a) Straight line method of Depreciation
17. (a) Revenue Receipt
19. (b) Credit side of machinery account
18. (b) Surplus
20. (d) All the above
19. (c) Cash Book
21. (d) All the above
20. (b) Capital Fund
22. (c) Nominal Account
21. (d) Income and Expenditure Account
23. (b) Reducing Balance method
22. (a) Revenue Income
24. (d) All the above
23. (c) Cash Book
25. (d) 1,620
14. (c) 43,000
26. (a) Known liability
15. (d) 34,000 27. (d) All the above
16. (d) 51,000 28. (b) Asset account
17. (d) 7,70,000 29. (d) Installation of asset
18. (b) 70,000 30. (b) Asset Account

// 28 //
B. Accounting from Incomplete UNIT-III
Records (Single Entry System) A. Accounting for Partnership Firm
1. (d) Incomplete Records 1. (b) 1932
2. (b) Useless missing items are 2. (d) Ten
ascertained 3. (d) Equality
3. (a) Profit 4. (b) Entitled to 6% interest on loans to
4. (b) Loss firm whether these are profit or not
5. (b) Sole trader 5. (a) Unlimited
6. (a) Single entry 6. (a) Independently
7. (c) Opening statement of affairs 7. (b) Fixed
8. (c) Closing statement of affairs 8. (c) May have a debit or credit balance
9. (d) Opening capital – Additional 9. (a) Only out of profit
Capital + Drawings 10. (a) Partner’s capital account
10. (b) Statement of affairs at the 11. (b) Capital at the beginning of the year
beginning and at the end of the
12. (b) Profit and Loss Account
period
13. (d) All of these
11. (a) Personal Accounts
14. (b) How profit have been utilised and
12. (c) Can be checked by converting the
distributed
incomplete records to complete
records 15. (a) Fixed Capital Method

13. (a) A precise balance sheet 16. (b) Drawings Account

14. (b) Not uniform B. Goodwill

15. (d) All of these 1. (d) Intangible asset

16. (d) Original vouchers 2. (b) Super profit

17. (d) Some ledger accounts and 3. (d) 40,000

estimates 4. (c) (Super profit) × (years of purchase)
18. (c) Either at the end or beginning of 5. (a) Cash account
the year 6. (a) Higher value
19. (b) Scope for manipulation of 7. (b) Less
accounts 8. (b) ( Average profit) – ( Normal profit)
20. (c) In a half-hazard manner 9. (c) 80,000
21. (c) closing statement of affairs
10. (d) Both of these
22. (a) Profit
11. (d) Average capital employed ×
23. (d) None of the above
normal rate of return
24. (c) Cash Account 100

// 29 //
C. Reconstitution of Partnership D. Miscellaneous Questions
1. (a) Change in the existing deed 1. (b) Debit balance in Profit and Loss
2. (b) All partners agree Account
2. (d) To find out result of revaluation of
3. (d) All of these
assets and liabilities
4. (c) Old partners in old profit sharing ratio
3. (c) Partner’s Capital Account
5. (d) Asset Account
4. (d) Equal Ratio
6. (b) 12 : 8 : 5
5. (c) Profit and Loss Appropriation
7. (b) 3:2:1 Account
8. (a) 3:2 6. (a) Partner’s Capital Account
9. (c) 1:1 7. (a) Partners
10. (b) Loss to old partners 8. (c) may have debit or credit balance
11. (b) Debit balance in the profit and loss 9. (c) Oral or written agreement
account 10. (a) Increase in value of assets
12. (c) Nominal Account 11. (a) For increase in amount of liability
13. (d) Memorandum Revaluation Account 12. (d) None of the above
14. (c) C 13. (d) All of the above
15. (a) 1/5 14. (b) 6 months
16. (b) Old partners in sacrificing ratio 15. (b) 6 ½ months
17. (a) With the consent of all partners 16. (c) 5 ½ months
18. (b) Old profit sharing ratio 17. (c) 50 partners

19. (a) Old partnership is dissolved 18. (b) Profit and Loss Appropriation
Account
20. (a) New profit sharing ratio
19. (d) Balance in Personal Account
21. (d) Results of revaluation of assets
20. (a) Change in Profit sharing ratio
and liabilities
21. (c) Sacrifice ratio
22. (a) Old partners in the old profit sharing
22. (c) Unrecorded asset
ratio
23. (d) with the consent of all old partners
23. (b) Revaluation Account
24. (c) Current Account of new partners
24. (d) Revaluation Account
25. (b) Debited to Revaluation Account
25. (c) Revaluation Account
26. (a) Credited to Revaluation Account
26. (b) Revaluation Account
27. (b) Old Partner’s Capital Account
27. (d) Liability Account
28. (c) Debited to Old Partner’s Capital
28. (a) Liability Account Account
29. (a) Old profit sharing ratio 29. (b) Accumulated loss
30. (a) All partners’ Capital Account 30. (c) Goodwill

// 30 //
 UNIT-IV 22. (c) The amount received on such
forfeited shares
A. Accounting for Share Capital
23. (b) 8
1. (b) 2
24. (a) 100
2. (a) 7
25. (d) Reserve and surplus
3. (c) Unlimited
26. (d) The maximum amount of capital
4. (c) 200
which a company is authorised to
5. (a) 5 lakh issue

6. (b) 1 lakh 27. (d) Reserve capital

7. (b) Owners 28. (b) Share allotment account

8. (a) Non-participating preference 29. (c) Share capital account

shareholders
30. (d) Shown on the Equity and
9. (c) both of the above Liabilities side of the Balance
Sheet
10. (c) No mandatory requirement
31. (c) 1,41,000
11. (c) 25% of the nominal value of shares
32. (c) Share Capital Account
12. (c) Share allotment account
33. (d) For not paying allotment/ call
13. (c) 25% of the issue price of shares
money
14. (d) Share capital account
34. (d) The called up amount on forfeited
15. (b) Prospectus shares

16. (a) Dividend 35. (b) 800

17. (b) Cannot transfer shares 36. (b) Prospectus

18. (d) Declaration of dividend 37. (b) Goodwill Account

19. (b) 10% p.a. 38. (b) Equity and liabilities side

20. (d) 12 % p.a. 39. (b) Two types of shares

21. (a) Capital reserve account 40. (c) Existing shareholders

// 31 //
 GROUP - A
OBJECTIVE TYPE QUESTIONS
B. Express / Answer in One Word / Term Each

UNIT - I 15. Give an example of wasting asset.

Financial Statements of Sole Trade 16. What does manufacturing account

Organisations ascertain?

1. Name one item which is added to 17. Outstanding expense is taken to which
owner’s capital. side of balance sheet?

2. Name one item which is deducted from 18. Where will you show in final accounts
owner’s capital. the prepaid insurance if appearing in
Trail Balance?
3. Give an example of intangible asset.
19. Where will you show the Income
4. Give an example of fictitious asset. received in advance in Balance sheet?
5. Give an example of current asset. 20. Which item is income to the proprietor
6. From which account, return outward is but expense to the firm?
deducted. 21. Which item is an income to the firm but
7. From which account return inward is expense to the proprietor?
deducted. 22. Name the term used for income earned
8. The difference between asset and but not received during the accounting
year.
liabilities is known as what?
23. Write the name of the expense which
9. Name the account depicting profit/ loss.
has been paid during the current
10. Where prepaid insurance appearing in accounting period but benefit will be
Trial balance is shown? received in subsequent accounting
11. Income received in advance is to be period.
shown in which side of balance sheet. 24. To which account you will transfer the
12. If closing stock appears in Trial balance, debt that cannot be received?
where it is to be shown in final account? 25. In which side of the profit and loss
13. Where will you show in final accounts, account manager commission payable
if depreciation appears in trial balance? is shown?

14. The amount due from customers which 26. Wages paid on installation of machinery
cannot be recovered is known as what? is to be debited to which account?

// 32 //
 UNIT-II 40. At which value assets are shown in the
A. Accounting for Depreciation Balance- Sheet?

27. Name the type of fixed asset on which 41. Which method of charging depreciation
depreciation is not calculated. is recognised by Income Tax
Authorities?
28. Name the asset against which the term
‘depletion’ is used. 42. On which side of machinery account,
depreciation is recorded?
29. Name the account to be debited while
charging depreciation. 43. On which side of machinery account,
profit on sale of machinery is recorded?
30. What is the term used for the amount
realised on sale of fixed asset after its B. Accounting from Incomplete
useful life. Records (Single Entry System)

31. Name the method of depreciation which 44. Which is the other name of incomplete
reduces the amount of depreciation records in book keeping?
year by year. 45. Under which method of single entry,
32. Which specific account is prepared on profit is determined by preparing profit
sale of fixed asset? and loss account?

33. In which method of charging depreciation, 46. Which accounts are only maintained in
the value of fixed assets become zero single entry system?
at the end of it useful life. 47. What is the other name of net worth
34. Name the type of asset on which method of single entry?
depreciation is calculated. 48. How many methods are there to
35. Under which method of charging determine profit in single entry?
depreciation, the amounts of depreciation 49. Single entry system is suitable for which
remain constant for each year? type of business?
36. Name the account to be debited for loss 50. To know capital at the beginning under
on sale of fixed asset. the single entry system, which statement
37. What is the amount of depreciation on /account is prepared?
the diminishing balance method on a 51. Name the capital under single entry
machinery of 50,000 at the rate of 10% system which is arrived by taking capital
p.a. in the 3rd year of its use? at the end + drawings – fresh capital
38. Name the process in which cost of the introduced.
asset is apportioned over the useful life 52. State whether single entry system of
of the asset. accounting is recognised by law.
39. On which cost depreciation is calculated 53. Whether internal check is possible in
on fixed assets. accounting for incomplete records?

// 33 //
54. Is it possible to find true financial 67. What is the other name of Revaluation
position of the business under single Account?
entry system?
68. What is the other name of Partnership
55. Name the term which represents the Deed?
decrease in closing capital under single
entry system? 69. Name the ratio which results in increase
in profit sharing ratio?
56. To which item, drawings is added to find
out profit under single entry system? 70. State the nature of Revaluation Account.
57. Name the term representing increase 71. In which year partnership was enacted?
in closing capital under single entry
72. If partnership deed does not specify the
system.
rate of interest payable on loan by a partner,
58. Name the system of accounting followed at what rate will the interest be paid?
by business which is not following
complete system of Double entry system 73. If partnership deed does not specify the
of Book keeping. profit sharing ratio, in what ratio the profit
or loss will be shared?
59. Under which system of accounting
arithmetic accuracy of accounts cannot 74. What is the term used for expressing the
be checked. reputation of a firm in monetary terms?
60. Name one account which is always 75. Name the asset which is intangible but
maintained under single entry system. not fictitious.
UNIT-III
76. Name the term used for writing off of
A. Accounting for Partnership Firm Goodwill.
61. Which is the maximum number of 77. Name the method of calculating
partners for a banking business? Goodwill, when normal profit and
62. Which account is to be opened to average maintainable profit of the firm
record the transactions of a partner with is given.
firm when capital is fixed?
78. To which partner’s capital account, profit
63. Under which capital system, only one
or loss on revaluation is not transferred?
account is opened in the name of each
partner? 79. Write the name of ratio, which results in
old ratio- new ratio.
64. Name the ratio of surrender of profit
sharing ratio. 80. On which side of Revaluation Account,
65. Name one mode of reconstitution of amount realised from unrecorded asset
partnership. is recorded?

66. On which basis partners compensate 81. On which side of Revaluation Account,
each other for the change in profit amount paid for unrecorded liabilities
sharing ratio? are recorded?

// 34 //
82. What is the maximum number of 96. What balance does call-in- arrear
partners in an ordinary partnership? account show?
83. On which side of partner’s capital 97. What is the maximum rate of interest
account, interest on capital will appear? allowed on call-in-advance?
84. On which side of partner’s capital 98. What is the maximum rate of interest
account, interest on drawings will charged on calls-in-arrear?
appear?
99. Under which head of balance sheet
85. What balance does a partner’s current
'securities premium reserve account' is
account show?
shown?
86. Which law is applicable to partnership?
100. Under which head of Balance sheet,
87. In absence of partnership deed, what share forfeited account is shown?
rate of interest will be charge on
drawings? 101. What is the nature of share Application
Account?
88. Credit balance of partner’s current
account will appear on which side of the 102. What is the minimum gap between two
Balance- Sheet? share calls?
89. Name the reorganisation or change in 103. Which type of shares has voting right?
the partner’s relation of a partnership
firm. 104. Which type of shares carry preferential
right as regards to payment of dividend
90. Name the account which is used to
and repayment of capital?
record thechange in the values of assets
and liabilities at the time of 105. Which company restrict the right to
reconstitution of partnership. transfer the shares?
91. W hat does credit balance of 106. What is the 1st stage in formation of a
Revaluation Account shows? company?
92. What does debit balance of Revaluation 107. What do you call maximum amount of
Account shows? share capital of the company?
UNIT-IV 108. Which type of shareholders has the
Accounting for Share Capital minimum risk?

93. Name the company which has only one 109. Name the document which is an
person as its shareholder. invitation to the public for subscription
of shares.
94. Name the company which has 200
members as the maximum limit. 110. Name the account to which premium
collected on issue of shares is credited.
95. What is the other name of authorised
capital? 111. What is the nature of capital account?

// 35 //
 ANSWER KEYS
GROUP - A
B. Express / Answer in One Word / Term Each

UNIT-I UNIT-II
A. Financial Statements of Sole Trade A. Accounting for Depreciation
Organisations 27. Land
1. Net profit 28. Wasting asset
2. Net loss 29. Depreciation Account
3. Goodwill 30. Scrap/ salvage value
4. Preliminary expenses 31. Written down value method
5. Stock 32. Asset Disposal Account
6. Purchases 33. Straight line method
7. Sales 34. Fixed Asset
8. Capital 35. Straight line method
9. Profit and Loss Account 36. Profit and loss Account
10. In Balance Sheet 37. 4,050
11. Liability side 38. Depreciation
12. Balance Sheet 39. Original cost
13. Income Statement 40. Book value
14. Bad debts 41. Written down value method
15. Mines 42. Credit side
16. Cost of goods produced 43. Debit side
17. Liability side B. Accounting from Incomplete Records
18. Balance Sheet (Single Entry System)
19. Liability side 44. Single entry
20. Interest on capital 45. Conversion method
21. Interest on drawing 46. Personal accounts
22. Accrued Income 47. Statement of affairs methods
23. Prepaid expense 48. Two
24. Bad debt account 49. Small
25. Debit side 50. Opening statement of affairs
26. Machinery Account 51. Adjusted closing capital

// 36 //
52. No 82. Fifty
53. No 83. Credit side
54. No 84. Debit side
55. Loss 85. Either Debit or Credit balance
56. Closing capital 86. Indian Partnership Act-1932
57. Profit 87. No interest
58. Single entry system 88. Liability side
59. Single entry system 89. Reconstitution
60. Cash Account 90. Revaluation account
UNIT-III 91. Profit
A. Accounting for Partnership Firm 92. Loss
61. 10 UNIT-IV
62. Current Account Accounting for Share Capital
63. Fluctuating Capital 93. One person company
64. Sacrificing ratio 94. Private limited company
65. Change in profit 95. Nominal/ Registered capital
66. Goodwill 96. Debit
67. Profit and loss adjustment account 97. 12 %
68. Articles of partnership 98. 10 %
69. Gaining ratio 99. Reserves and surplus
70. Nominal 100. Share capital
71. 1932 101. Representative Personal Account
72. 6% 102. One month
73. Equally 103. Equity shares
74. Goodwill 104. Preference shares
75. Goodwill 105. Private companies
76. Amortisation 106. Promotion
77. Super profit method 107. Authorised capital
78. New partner 108. Preference shareholders
79. Sacrifice ratio 109. Prospectus
80. Credit side 110. Securities Premium Reserve
81. Debit side 111. Personal account

// 37 //
 GROUP - A
OBJECTIVE TYPE QUESTIONS
C. Answer in One Sentence Each

Unit - I 13. W hat do you mean by capital

1. Mr. X spends 4,00,000 for the expenditure?
advertisement of a new product in the 14. W hat do you mean by revenue
market for five years. What type of expenditure?
expenditure is this?
15. What is meant by deferred revenue
2. Give a formula to calculate operating expenditure?
profit from net profit.
16. Why the Balance - Sheet is called
3. Whether cost of obtaining a licence to position statement?
carry out a motor transport business is
17. When closing stock is given in the trial
a capital expenditure or revenue
balance?
expenditure?
18. What do you mean by doubtful debt?
4. Where will you show interest in fixed
deposit in 'final accounts'? 19. What do you mean credit balance in the
Profit and Loss Account?
5. Salary and wages is shown in the trail
balance of trader. To which account will 20. What is the treatment of return inward
he transfer? in Trading Account?

6. The valuation of closing stock is base 21. State the name of end products of
on which principle? Financial Accounting?

7. What journal entry will be passed for 22. Why asset side of the balance sheet
prepaid insurance? represent items with debit balances?

8. What journal entry will be passed for UNIT-II

outstanding salary? 23. State the purpose of providing
9. What is marshalling of Balance Sheet? depreciation.

10. What do you mean adjusted purchase? 24. Is depreciation a non-cash expenditure?

11. Why trading and profit and loss account 25. How will you determine the 'depreciable
are called Income Statement? cost of the asset'?
12. The provision for discount on debtors 26. Patanjali Traders charges 10%
is calculated after deducting the depreciation on its land because it
provision for doubtful debt from debtors. wants show lesser profit to avoid tax. Is
State the reason. it a right decision?

// 38 //
27. Gitanjali Traders charges depreciation 44. What is single entry system?
@ 10 % on straight-line method. Will this 45. Arithmetic accuracy of the accounts
method be recognised by Income Tax maintained under single entry cannot be
Act? checked. Explain.
28. What is single entry system? 46. Name the different laws of the country
29. What is Statement of Affairs? which have not recognised single entry
30. W hich methods are followed to system.
ascertain profit/loss under single entry 47. Mention one common objectives of
system? single entry system.
31. What do you mean by Depreciation? 48. How will you calculate the profit under
32. Write any one cause of Depreciation? single entry system?

33. On which type of asset, depreciation is 49. Do you agree that Dual Aspect concept
charged? is followed under single entry system?

34. State any one characteristic of 50. W hether the Balance- Sheet is
depreciation. prepared under single entry system?

35. Give the journal entry for writing off UNIT-III

depreciation. 51. W hat are the two methods of
36. Give anyone difference between maintaining capital accounts of
straight line method and written down partners?
value method of depreciation. 52. Why profit and loss appropriation
37. What do you mean by residual value of account is prepared?
an asset? 53. Mention four items appearing on the
38. Explain the term 'wear and tear' in debit side of a partner's capital account?
depreciation. 54. Mention four items appearing in the
39. How will you determine depreciation debit side of profit and loss
cost of Asset? appropriation account.

40. W hy it is necessary to charge 55. What do you mean by reconstitution of

depreciation on the assets to know the partnership firm?
true financial position of the business? 56. What is the sacrificing share?
41. Do you agree that depreciation is the 57. Who are sacrificing and gaining partner?
fixed cost of the asset that has expired? 58. If A and B are partners sharing profit in
42. Write any one characteristic of single 3:2 ratio and they agreed to share the profit
entry. equally, calculate the sacrifice / gain.
43. State any one limitation of single entry 59. State any one reason of admitting a new
system of book- keeping. partner.
// 39 //
60. What is Revaluation Account? UNIT-IV
61. Define Goodwill. 77. Define a company.
62. State maximum number of partners in a 78. What is meant by private placement of
partnership firm. shares?
63. State whether revaluation account is 79. What is meant by Initial Public Offer?
debited or credited to record the
increase in value of building? 80. What is minimum subscription?

64. State whether revaluation account is 81. What is meant by pro-rata allotment?
debited or credited to record the 82. What is meant by forfeiture of shares?
amount recovered that was earlier
83. What are sweat Equity shares?
written off as bad debt.
84. What is re-issue of shares?
65. State whether partner's capital account
will be debited or credited with the 85. What is stock?
transfer of share of General Reserve.
86. What is surrender of shares?
66. State the ratio in which old partner's
87. What is a share?
share all the accumulated profits,
reserves and losses. 88. What do you mean by redeemable
preference shares?
67. Define Partnership.
68. Mention three essential features of 89. What is the maximum amount of
partnership. discount which may be allowed on re-
issue of share?
69. Define partnership deed.
90. What is forfeiture of Preference shares?
70. Under which method of maintain capital
account, current accounts are 91. What do you mean by over-subscription?
maintained along with capital 92. What is under subscription of shares?
accounts?
93. What is preferential allotment of shares?
71. Write the formula for calculating interest
on capital of a partner. 94. State one purpose for which amount of
securities premium can be utilised.
72. When Goodwill brought by new partner
is not recorded in the books of accounts. 95. What is preliminary expenses?

73. What is revaluation account? 96. What is reserve capital?

74. How you will calculate new profit ratio 97. What do you mean by called up capital?
of a partner?
98. What is meant by allotment of shares?
75. Name the methods of valuation of
99. What is issue of shares at premium?
goodwill.
100. What is issued capital?
76. What do you mean by hidden goodwill?
// 40 //
 ANSWER KEYS
GROUP - A
C. Answer in One Sentence Each
UNIT-I 12. The discount will be allowed only to
1. It is deferred revenue expenditure. those debtors who will make prompt
payment.
2. Operating profit = Net profit + Non
operating expenses - Non operating 13. From capital expenditure, benefit is
incomes. received over a long period of time.

3. It is a capital expenditure. 14. Revenue expenditure is incurred for the

day to day conduct of the business.
4. Interests on fixed deposit will be
credited to profit and loss account. 15. Deferred revenue expenditure is
normally treated as revenue expenditure,
5. He will transfer 'salary and wages' to
but benefit is received by the business
profit and loss account.
for more than one accounting year.
6. The valuation of closing stock is based
16. Balance sheet is called Positional
on the principle of prudence /
statement as it is a statement of financial
conservatism.
position of the business on a particular
7. Prepaid Insurance A/C ………Dr date.
To Insurance Account
17. In case of adjusted purchase, closing
(Being insurance paid in advance)
stock is given in the trial balance.
8. Salary A/C ………Dr
18. The debtors who are doubtful of
To Outstanding salary Account
realisation are known as doubtful debt.
(Being salary unpaid)
19. Credit balance in profit and loss account
9. The arrangement of assets and
means Profit earned.
liabilities in Balance sheet either in the
order of liquidity or permanency is called 20. Return inwards will be shown in credit
marshalling of Balance Sheet. side of Trading Account by way of
deduction from sales.
10. Adjusted purchases = Net purchases +
Opening stock - Closing stock. 21. The end product of financial accounting
is Trading and Profit and loss Account
11. As the financial performance of an
enterprise shown in the vertical form in and Balance-Sheet.
an accounting year, the Trading, Profit 22. Since asset represent the items with
and Loss account are called Income debit balances, the asset side of the
Statement. balance sheet represent debit balances.

// 41 //
 UNIT-II 35. Depreciation A/C ………Dr
23. The purpose depreciation is to To Asset Account
ascertain the true amount of profit. (Being Depreciation provided on asset)

24. Yes, it is a non-cash expenditure 36. Under straight line method amount of
because it does not involve cash outlay. depreciation remain the same throughout
the life of the asset. Under written down
25. Depreciable cost is determined by
value method rate of depreciation remain
deducting the salvage value of the asset
the same but amount of depreciation
from its cost price.
goes on reducing year after year.
26. No, it is not a right decision to depreciate
37. Estimated realisable value of the asset
land. Land is not depreciable asset as
at the end of its useful life is known as
its useful life is not limited to years.
residual value of the asset.
27. No, Income Tax Act recognises only
38. Wear and tear is normal depreciation
written down value/ diminishing value
of the fixed asset because of constant
method of depreciation.
use and passage of time.
28. The incomplete double entry system of
39. Depreciation cost of asset = Cost of the
keeping accounting records is called
asset- Scrap value of the asset
single entry system.
40. It is necessary to charge depreciation
29. Statement of affairs is a balance sheet
on fixed assets to know the true financial
prepared under single entry system on
position because if depreciation is not
a particular date.
charged, both profit and fixed asset will
30. Statement of affairs and conversion be shown at a higher value.
method are two alternative methods of
41. Yes, depreciation is the fixed cost of
ascertain profit/ loss under single entry
asset that has expired.
system.
42. Under single entry system only personal
31. Depreciation is allocation of the accounts are maintained.
depreciable amount of an asset over the
43. Under single entry system true profit of
estimated useful life of the asset.
the business cannot be ascertained.
32. Value of fixed asset reduces because
44. In single entry system accounting records
of constant use, passage of time.
are not completed according to double
33. Depreciation is charged on fixed assets entry principle.
over its useful life.
45. Under single entry system trial balance
34. Depreciation is continuous reduction in cannot be prepared in absence of full
the value of asset till the entire cost is information. Hence, arithmetic accuracy
exhausted. of the accounts cannot be checked.

// 42 //
46. The legal authorities like Income tax 56. The sacrificing share is that ratio in which
authorities, courts, other tax authorities partners sacrifice / forgo their share of
etc. does not recognise this system. profit in favour of other partner.
47. The common objective of both the systems 57. Sacrificing partner is one whose share
is to ascertain the profit or loss of the
of profit is decreased and a gaining partner
business for a specific period of time.
is one whose share of profit is increased
48. Profit = Closing capital + Drawings - due to change in profit sharing ratio.
Additional capital employed - Opening
capital. 58. B gain by 1/10th share and A sacrifices
by 1/10th share.
49. No, Dual aspect system is not followed
under single entry system as it does not 59. When necessity is felt for more capital
record both the aspects of the to expand the business, new partner is
transaction. admitted.
50. No, Balance sheet is not prepared under 60. Revaluation Account is a nominal
single entry system. Statement of affairs account which shows profit/ loss arising
is prepared instead of Balance sheet. because of valuation of existing assets
UNIT-III and liabilities at the time of admission/
51. The two methods to maintain capital retirement.
accounts of partners are fixed capital
61. Goodwill is the value of reputation of a
and fluctuating capital.
firm in respect of the profit expected in
52. Profit and loss appropriation account by
future over and above the normal profits
a partnership firm to carry out
earned by other similar firms of a
adjustments of partners rights (salary,
particular industry.
interest on capital) and obligations
(interest on drawings) is prepared. 62. Maximum partners in a partnership firm
53. (a) drawings made during year is 50.
(b) Interest on drawings 63. Revaluation account is credited for the
(c) Share of loss if any and increase in value of building.
(d) closing balance
64. Revaluation account will be credited
54. (a) interest on capital
with the amount of bad debt recovered.
(b) partner's salary
(c) partner's commission and 65. Partner's capital account is credited for
(d) partner's share of profit transfer of his share of General Reserve
to his capital account.
55. Whenever there is a change in the
partnership agreement and the firm 66. The old partners share accumulated
continues, it is called reconstitution of profit, reserves and losses in old profit
the partnership firm. sharing ratio.

// 43 //
67. Partnership is the relationship between 76. Hidden goodwill is the excess of
two or more persons who have agreed desired total capital of the partnership
to share the profit of a business carried firm over the actual combined capital of
on by all or any of them acting for all.
all partners.
68. Three essential features of partnership
UNIT- IV
are
(i) Two or more persons 77. A company is an artificial person
(ii) sharing of profit or loss created by law, having a corporate and
(iii) Agreement among partners legal personality, distinct from its

69. A partnership deed is a document in members, perpetual succession and a

writing containing important terms of common seal.
agreement among partners 78. Private placement of shares means
70. Under fixed capital method, both the issue of shares to a selected group of
capital account and current account of persons.
each partner is maintained.
79. Making an offer to general public,
71. Formula for calculating interest on inviting them to subscribe for the shares
capital of a partner is: of the company for the first time through
Amount of capital × Rate × Time a stock exchange is known as initial
100 public offer.
72. Goodwill paid privately by the new 80. Minimum subscription refers to the
partner to the old partner is not recorded minimum amount of capital must be
in the books of the partnership firm.
subscribed by the public before the
73. Revaluation account is a nominal company proceeds for allotment.
account prepared to record increase or
81. Prorata allotment is an allotment of
decrease in the book value of the assets
and liabilities of the partnership firm and shares proportionately to the applicants
to transfer profit or loss arising out of when the applications for shares
such increase or decrease. received are more than the number of

74. New profit sharing ratio of a partner = shares issued.

Old profit sharing ratio - sacrifice ratio 82. If a shareholder fails to pay the money

75. Methods of valuation of Goodwill are due either on allotment or on calls within
(i) average profit method the stipulated date, the company can
(ii) super profit method forfeit the deposited amount by giving
(iii) Capitalisation method a notice to the default shareholders.

// 44 //
83. Shares issued by the company to its 91. If applicants apply for more than the
employees or directors at a discount for number of shares offered to the public,
providing know-how or making available the issue is said to be overscribed.
right to use intellect property is known
92. If number of shares applied by the
as sweat equity shares.
public is less than number of shares
84. Forfeited shares being the property of offered by the company, the issue is
the company can be offered to new said to be undersubscribed.
shareholders at any price either at par
93. Preferential allotment means allotment
or at premium or discount, which is
of shares at a pre-determined price to
known as reissue of shares.
pre-determined people having strategic
85. A fully paid share can be converted into stake in the company like Promoters,
a stock. It can be transferred both in financial institutions etc.
whole number and fraction.
94. The securities premium can be utilised
86. Surrender of shares means the voluntary for issue of fully paid bonus shares to
return of shares to the company by a the shareholders.
shareholder who is unable to pay money
95. Expenses incurred for formation of the
due on subsequent calls.
company is known preliminary expenses.
87. Shares may be defined as an interest
96. A company by a special resolution can
in the company entitling the owner to
decide to keep a certain portion of
receive proportion part of the profit and
capital as reserve to be issued only at
proportion part of the asset at the time
the time of emergency, which is known
of liquidation.
as reserve capital.
88. Redeemable preference share is the
97. Called up capital is that portion of
share whose capital is returned by the
subscribed capital which has been
company to the shareholder after a
called up by the company.
specific period of time.
98. Share allotment is a process of accepting
89. Maximum amount of discount on re-
the offer of the applicant for purchase
issue of forfeited shares is equal to
of shares.
amount previously received towards
capital on these forfeited shares. 99. Issue of shares at premium means issue
price is more than the face value of share.
90. Forfeiture of preference shares means
cancellation of shares for non-payment 100. Issued capital means capital issued by
of amount due on allotment or call on the company from time to time for
preference shares. subscription.

// 45 //
 GROUP - A
OBJECTIVE TYPE QUESTIONS
D. Fill up the Gaps
UNIT-I 13. Bad debt is a ___________.
1. All the direct expenses are shown in 14. Discount received from creditor is
_________________. __________.
2. Assets and liabilities are shown in the 15. An expenditure incurred in achieving
balance sheet in the order of
economy in operation is a __________
____________or permanency.
expenditure.
3. Income received in advance is a
16. Expenditure incurred on colouring a new
_____________for the business.
factory is a ___________ expenditure.
4. Provision for doubtful debts is calculated
on the amount of debtors after 17. Bad debts recovered are transferred to
deducting___________. _____________side of profit and loss
5. Accrued income is considered as account.
____________ for the business. 18. Depreciation is charged on _________
6. Manager's commission payable is Assets.
shown on ___________side of balance 19. If prepaid expenses are shown in the
sheet. trial balance, it will be shown only in the
7. Interest on drawings is shown on the ____________.
_______of the profit and loss account.
20. When closing stock appears in the Trail
8. ___________ refers to those expenses Balance, it is shown only in ________.
which are still payable but the benefits
of them have been already enjoyed. 21. ________ and Profit and Loss Account
are part of the financial statement.
9. __________ refers to those expenses
that have been paid in the current 22. Purchases return and sales return are
accounting period, but their benefit shall shown in ____________ account.
only be realised in the next accounting
23. Copy right is ______________ asset.
period.
24. Gross Profit is shown in _________
10. Royalties on sale is charged to
_________ account. side of the Profit and Loss account.

11. Royalties on production is charged 25. Net Profit ___________ to the capital
to______________ account. of the proprietor.

12. All indirect expenses are taken to 26. The balance of Trading Account is
___________ account. transferred to ___________ Account.

// 46 //
 UNIT-II 43. Depreciation is the process of
27. The term 'depreciation' is derived from apportionment of the cost of asset over
the Latin word _________________. its ____________.

28. The realised estimated value at the time 44. Under ________ method, depreciation
of discarding fixed asset is known as is charged at a fixed percentage on the
___________. original cost of the asset.

29. Obsolenscence is the technical term 45. The book value of the asset cannot be
used as the reason of discarding zero under _____________ method of
____________ asset. depreciation.
30. Depreciation is a _________ expense. 46. Discarding of old plant and machinery
because of new invention is called
31. ___________ Method of depreciation
___________.
is approved by income tax authorities.
32. Depreciation is shown on the 47. ________ system of accounting is not
_________ side of machinery account. based on dual concept of accounting.

33. Capital at the end of the year is 48. Single entry system maintains
ascertained by preparing __________ __________and _________accounts.
at the end of the year. 49. Single entry system does not maintain
34. In a single entry system, there are ______ account except cash account.
__________ methods to find out profit. 50. Single entry system does not record
35. Under single entry system, information both ________ and ________ aspects
regarding expenses must be ascertained of a transaction.
from the analysis of _____________. 51. In case of single entry system, a
36. In single entry, a ____________ picture _______ picture of all the transactions
of all transactions will be available. will be available.
37. Increase in adjusted closing capital 52. If closing capital is 50,000, drawings
represents _______________. 5,000, profit 10,000, then opening
38. Decrease in adjusted closing capital capital is ____________.
represents ______________. 53. If closing capital is 1,50,000, drawing
39. Permanent decrease in value of asset 20,000, opening capital is 1,00,000,
is known as ______________. then profit is _____________.

40. Total cost of Fixed Asset = Purchase UNIT-III

Price _________ Installation expenses. 54. In the absence of partnership deed,
41. Depreciation refers to ___________ in profit are shared in __________ ratio.
the value of fixed asset. 55. Partners are collectively called ______.
42. ____________ is the only asset which 56. Partner's current accounts are prepared
is usually not depreciated. when capital accounts are _________.
// 47 //
57. Under ___________capital method, 71. For any decrease in the value of liability,
capital at the beginning and capital at the revaluation account is to be ______.
the end will be different. 72. A new partner, instead of bringing cash
58. In the absence of agreement, interest for his share of goodwill, may bring
____________ paid on capital. some ___________.

59. A partner ____________ entitled to 73. In absence of partnership deed, the

salary if he works more than others. partners share profit in ________ ratio.

60. Excess of actual adjusted profit over 74. The document containing the term of an
normal profit is called ____________ agreement of a partnership is known as
profit. partnership ______.

61. Negative super profit indicates that 75. Partnership deed is a __________
there is no ______ of business concern. agreement among partners.
76. When date of drawing is not given,
62. The number of methods of goodwill /
interest for ________ months is
valuation is ________.
calculated on total drawings during the
63. When a business is taken over by period.
another business, the excess of
77. When partner takes goods for private
purchase price over its net value is
use, ___________ account is credited
referred as _____________.
by the firm.
64. Appreciation in the value of investment
78. Salary to a partner is an ____________
is _______to the Revaluation Account.
of profit.
65. A partner, whose share is increased due 79. Goodwill is an __________ asset.
to change in profit sharing ratio, is
called ____________. 80. Appreciation in value of investment is
___________ to Revaluation Account.
66. Share of goodwill brought in cash by new
81. Revaluation of asset is necessary
partner is also called __________.
because book value of asset may be
67. Decrease in provision for doubtful debts ______________ from present value.
will be _______ to Revaluation Account.
82. If all the partners decide that assets and
68. ___________ asset are debited to old liabilities in the new balance sheet is to
partner's capital accounts at the time of be shown at the same old figure after
admission of partners. reconstitution of the firm, then
69. If memorandum of Revaluation Account _____________ revaluation account is
is opened and its first portion shows a to be prepared.
profit, then its second portion will show 83. Partnership firm is regulated by
____________. Partnership Act ____________.
70. Profits on revaluation is credited to old 84. Change in ________ is one of the mode
partners in ____________ ratio. of reconstitution of partnership firm.

// 48 //
85. Generally, the _____________ partner 99. A new company cannot issue shares at
compensates the __________ partner ___________.
by proportionate amount of goodwill. 100. Securities Premium Reserve Account is
86. ________ and ________ are revalued shown under the heading _________.
at the time of reconstitution of 101. Discount on issue of shares is a
partnership firm. ____________ loss.
87. ____________ in the value of plant and 102. A notice of _________ days is must for
machinery is recorded in the credit side the payment of calls on shares.
of revaluation account.
103. Maximum number of shareholders in a
88. Profit on revaluation is ___________ to private limited company is _________.
partner's capital account.
104. Minimum number of shareholders in a
89. Reserve and surplus are ___________ public limited company is __________.
to partner's capital account.
105. The part of share capital which can be
90. Deferred revenue expenditure is called up only in the event of winding up
_______ to partner's capital account. of a company is known as ____ capital.
91. Profit or loss on revaluation is 106. When allotment money is due, share
transferred to partner's capital account _____________ account is credited.
in __________ ratio.
107. As per Table_________ of Schedule I
UNIT-IV of the Companies Act, 2013, a
92. The minimum application money is company may pay maximum 12%
interest on call-in- advance.
________ % of the issue price of shares
as per SEBI guidelines. 108. The company cannot proceed with the
allotment of shares, unless it receives
93. The amount of calls-in-advance is a
__________subscription.
__________ of the company.
109. As per SEBI guidelines, minimum
94. When shares are forfeited, share _____
subscription has been fixed at ____%
account is debited for the amount
of the issued amount.
already called up on shares forfeited.
110. The liability of each shareholder is
95. The company cannot proceed with the
__________.
allotment of shares, unless it receives
_________ subscription. 111. Process of allotment of shares must be
completed within _______ days of the
96. If any shareholder fails to pay the
issue of prospectus.
allotment or calls money within the
stipulated period, the company may 112. Shares which are not equity shares are
______________ his shares. called as ____________ shares.

97. When shares are forfeited, the unpaid 113. Share application account is a _______
call account is ____________. account.

98. Profit on reissue of forfeited shares is 114. Premium on issue of shares is a _____
transferred to __________ account. profit to the company.

// 49 //
 ANSWER KEYS
GROUP - A
D. Fill up the Gaps

UNIT-I 20. Balance Sheet 39. Depreciation

1. Trading Account 21. Trading Account 40. Plus

2. Liquidity 22. Trading

41. Reduction

3. Liability 23. Intangible

42. Land
4. Further bad debt 24. Credit
43. Useful life
5. Asset 25. Added
44. Straight line
6. Liabilities 26. Profit and Loss
45. Reducing balance
7. Credit side UNIT-II
46. Obsolescence
8. Outstanding expenses 27. Depretium
47. Single entry
9. Prepaid expenses 28. Scrap
48. Cash, personal
10. Profit and Loss 29. Fixed
49. Real
11. Manufacturing 30. Non- cash
50. Debit, Credit
31. Written down value
12. Profit and loss
51. Partial
32. Credit
13. Loss
52. 45,000
33. Statement of affairs
14. Income
34. Two 53. 70,000
15. Capital
35. Cash book UNIT- III
16. Capital
36. Partial 54. Equal
17. Credit
37. Profit 55. Firm
18. Fixed
38. Loss 56. Fixed
19. Balance Sheet
// 50 //
57. Fluctuating 77. purchase 96. forfeit

58. is not 78. appropriation 97. credited

59. is not 79. intangible 98. capital reserve

60. super 80. Credited 99. Discount

61. goodwill 81. different 100. Reserve and surplus

62. Three 82. Memorandum 101. capital

63. goodwill 83. 1932 102. 14

64. credited 84. Profit sharing ratio 103. 200

65. Gaining 85. Gaining, sacrificing 104. 7

66. premium 86. assets, liabilities 105. Reserve

67. credited 87. increase 106. capital

68. Fictitious 88. credited 107. F

69. loss 89. credited 108. minimum

70. old 90. debited 109. 90%

71. credited 91. Profit sharing ratio 110. limited

72. assets UNIT-IV 111. 120

73. Equal 92. 25 112. Preference

74. deed 93. Debt 113. Personal

75. written 94. capital 114. capital

76. six 95. minimum

// 51 //
 GROUP - B
SHORT TYPE QUESTIONS
A. SHORT QUESTIONS TO BE ANSWERED (2 MARKS EACH)

UNIT-I 17. What is intangible fixed asset?

Final Accounts of Sole Trade from of 18. What is current asset?
Organization 19. What is fictitious asset?
1. Distinguish between revenue expenditure 20. What are current liabilities?
and capital expenditure.
21. What is Income Received in Advance?
2. What is cost of goods sold?
22. What are the ways in which assets can
3. What are the direct expenses of be arranged in Balance Sheet?
business?
23. What are the wasting assets?
4. Differentiate between Trial Balance and
24. What are outstanding expenses?
Balance Sheet.
25. What is prepaid expense?
5. What are the ways/methods of arranging
of the items in Balance Sheet? 26. What do you mean by order of liquidity?

6. Distinguish between current assets and 27. What is a contingent liability?

fixed assets. 28. What is a contingent asset?
7. Distinguish between gross profit and 29. What is long-term liability?
net profit.
30. What is bad debts?
8. Name five items appearing in Trading 31. What is provision for bad and doubtful
Account. debts?
9. Name five items appearing in Profit and 32. Give the treatment of provision for bad
Loss Account. and doubtful debts in Final Account.
10. What is gross profit? 33. What is the treatment of bad debts in
11. What is net profit? Final Account?

12. What is Trading Account? 34. What is the treatment of closing stock
in the Final Account?
13. What is Profit and Loss Account?
35. How will you treat prepaid expenses in
14. What are the indirect expenses?
Final Accounts?
15. What is fixed asset?
36. What is the treatment of outstanding
16. What is tangible fixed asset? expenses in the Final Accounts?
// 52 //
37. What is the treatment of depreciation in UNIT-II
Final Accounts?
Accounting for Depreciation
38. What is the treatment of provision for
53. What is depletion?
depreciation in Final Accounts?
54. What is amorititation?
39. What is the treatment of Accrued
Income in Final Accounts? 55. What is salvage / scrap value of fixed
asset?
40. What is the treatment of income
received in advance in Final Accounts? 56. Write any two differences between
41. What is Manufacturing Account? straight line and written down-value
method of depreciation.
42. What are direct expenses?
57. What are the causes of depreciation?
43. Give three examples of deferred
revenue expenditure. 58. Why is asset shown in the Balance
Sheet at its original cost under
44. What are financial statements?
'Provision for depreciation' method?
45. W hat is the primary objective of
59. W hat is the need for charging
preparing final accounts?
depreciation?
46. When does a Trading Account shows
gross loss? 60. What do you mean by 'diminishing
balance method' of depreciation?
47. Why contingent liability is not shown in
balance-sheet? 61. Why straight line method of depreciation
is so named?
48. What is the effect of bad debts on net
profit? 62. Write two characteristics of depreciation.

49. How will you show the amount of 63. Give the factors for determination of
10,000 received as rent for the next depreciation.
accounting year in the final accounts?
64. W rite the formula for calculating
50. What entry is passed for making a depreciation under straight line method.
provision for discount on debtors? Explain with an example.
51. Ascertain the cost of goods sold from 65. What do you mean by obsolescence?
the following:
66. State two merits of straight line method
Opening stock 12,000, Purchases of depreciation.
1,12,000, Direct expenses 6,000, Indirect
Accounting from Incomplete Records
expenses 8,000, Closing stock 15,000.
52. What is the treatment of life insurance 67. Define single entry system of accounting.
premium paid by business in final 68. What do you mean by "Statement of
accounts? Affairs"?

// 53 //
69. What do you mean by "Incomplete UNIT-III
accounting records"? Accounting for Partnership firm
70. "Arithmetic accuracy of the accounts 84. What is partnership?
maintained under the single entry
85. How many persons are required for
system cannot be checked", why?
partnership?
71. Why true profit of the business cannot
86. Which Act governs the partnership
be ascertained under single entry?
business in India?
72. Name the different laws of the county/
87. Why profit and loss appropriation
India which do not recognize single entry
account is prepared?
system.
88. State Fixed Capital.
73. Why single entry system is not so popular?
89. Define current account.
74. Write two differences between single
90. Which accounts are opened under fixed
entry and double entry system.
capital account methods?
75. Give some reasons of maintaining
91. What is fluctuating capital account?
incomplete records.
92. Which transactions are recorded in
76. State any two limitations of single entry
fluctuating capital account?
system.
93. How many accounts are opened under
77. How can opening capital be ascertained
fluctuating capital account method?
from incomplete records?
94. Explain interest on drawings of partners.
78. How can closing capital be ascertained
95. Give two situations in which fixed capital
from incomplete records?
of partners may change.
79. Enumerate the names of methods to
96. Mention five items appearing on the
ascertain profit/ loss from incomplete
debit side of capital accounts of a
records?
partner when capitals are fluctuating.
80. Why goodwill cannot be valued under
97. Mention five items appearing on the
single entry system?
credit side of capital accounts of a
81. Why internal check is not possible under partner when capitals are fluctuating.
single entry system?
98. What is drawings?
82. State two difference between statement 99. Explain the interest on capitals of partners.
of affairs and balance sheet.
100. Explain the interest on loan by a partner.
83. Explain the characteristics of single
101. What do you mean by goodwill?
entry system.
// 54 //
102. What is the nature of goodwill? 123. What is the effect of revaluation?

103. Give any four factors affecting goodwill. 124. What is Memorandum Revaluation
104. What are the methods of valuation of Account?
goodwill? 125. Write any three features of Revaluation
105. Explain average profit. Account.

106. Explain the average profit method of 126. How distributed reserves and
goodwill. accumulated profits / losses are treated

107. What is the need of valuing goodwill? on the change of constitution of

partnership?
108. What do you mean by super profit?
127. What is hidden goodwill?
109. What is super profit method of goodwill?
128. What is the effect of memorandum
110. What is capital employed?
Revaluation Account on partner's
111. What is average capital employed?
Capital Account?
112. W hat is capitalization method of
129. Explain the A.S-26 with regard to
goodwill valuation?
treatment of goodwill.
113. Explain average profit method for
130. W hat is the premium method of
valuation of goodwill.
goodwill?
114. Explain the super profit method for
131. Pass journal entries when a new partner
valuation of goodwill.
is unable to bring his share of goodwill
115. Give at least two differences between
in cash.
average profit and super profit.
132. On admission of a partner, which journal
116. What is reconstitution of partnership?
entry to be passed for increase in asset?
117. W hat are the circumstances for
133. On admission of a partner, which
reconstitution of partnership?
journalentry to be passed for increase
118. What is sacrificing ratio? in liability?
119. What is gaining ratio? 134. Give the accounting entry for new partner
120. Define Revaluation account. bringing his share of goodwill/ premium
in cash and it is retained in the business.
121. What is the revaluation of assets and
liabilities? 135. Give the accounting entry for new partner
bringing his share of goodwill in cash
122. Why is revaluation necessary?
and it is withdrawn by old partners.
// 55 //
136. What is the accounting treatment for 148. What is the purpose of opening current
goodwill if paid privately? account of a partner?

137. Estimate goodwill if A and B shares 149. What do you mean by change in profit

equally having capital of 20,000 each. sharing ratio?

C is admitted with 1/4th of profits in 150. Mention four factors affecting goodwill
the firm and contributed 24, 000 as valuation.
his share. 151. Define hidden goodwill with calculation.

138. P and Q are partners with 3:2 ratio, R is 152. What is the necessity of revaluation of
admitted and the new ratio of P, Q and assets and liabilities at the time of
R is 2 : 2 : 1. Calculate sacrifice of old change in profit sharing ratio among the
partners. existing partners?

139. What is the accounting treatment for UNIT-IV

new partner, bringing only aportion of Accounting for Companies

goodwill in cash? 153. What is sweat equity shares?

140. How do you calculate interest on 154. What is book-building process?

drawing, if no date of drawing is given? 155. What is ESOP?
Explain with illustration.
156. Explain issued of shares by a company.
141. What is maximum number of partners
157. What is minimum application money?
under different situations?
158. What is allotment of shares?
142. Is it essential that each partner should
159. What is the effect of allotment of shares?
contribute capital? Explain.
160. What do you mean by share call?
143. Is it necessary to have a written
161. What is issue of shares at a premium?
agreement?
162. Explain two utilizations of securities
144. Can a minor be admitted as a partner?
premium?
145. What do you mean by a partnership firm? 163. What is the prohibition on issue of
146. Explain essential characteristics of shares at discount?
partnership. 164. Write two conditions for issuing shares
at discount.
147. Mention five important provisions of the
Indian Partnership Act, 1932, which apply 165. What is over subscription of shares?
in the absence of partnership deed. 166. What is prorata allotment of shares?

// 56 //
167. What is calls in arrear? 189. What is the accounting effect of reissue
of shares?
168. What is calls in advance?
190. What is surrender of shares?
169. What do you mean by share?
191. What is issue of shares for cash by
170. What is share capital?
private placement?
171. What is authorized capital?
192. State the issue of shares for
172. What us Initial Public Offer? consideration other than cash.

173. What is preferential allotment? 193. What is the accounting entry for
forfeiture of shares issued at par?
174. What is share certificate?
194. What is under subscription of shares?
175. Write any two features of a joint stock
company. 195. What is Lien on shares?

176. Write any two features of a private 196. What is Share Application Account?
limited company.
197. What do you mean by redeemable
177. Write any two features of a public limited preference share?
company.
198. What is participating preference share?
178. What are the types of shares a company
199. What do you mean by convertible
can issue?
preference shares?
179. What is one person company/ OPC?
200. What is meant by preliminary expenses?
180. What is a small company?
201. Why is prospectus issued by company?
181. What are preference shares?
202. Write any two special features of an
182. What are equity shares? equity share.

183. What is cumulative preference share? 203. Is there any legal restriction on the issue
of shares at premium?
184. What is mean by reserve capital?
204. "Securities Premium Reserve Account"
185. What is capital reserve?
is shown under which heading?
186. What is forfeiture of shares?
205. W hat is the distinction between
187. What is re-issue of shares? cumulative and non-cumulative
188. What is stock? preference shares?

// 57 //
 ANSWER KEYS
GROUP - B
A. SHORT QUESTIONS TO BE ANSWERED (2 MARKS EACH)

UNIT-I

Final Accounts of Sole Trade from of Organization

1. Revenue expenditure is incurred to maintain the earning capacity of the business in its day
to day operations while capital expenditure is incurred to improve the earning capacity of
the business. The benefit of revenue expenditure is exhausted within one accounting period
while the benefit of capital expenditure will continue for more than one accounting period.

2. Cost of goods sold is the sum total of net purchases, stock at the beginning and direct
expenses on purchases less closing stock. Symbolically:

Cost of goods sold = Net purchases + stock at the beginning + Direct expenses on purchases
- Stock at the end.

In other words, it is the difference between net sales and gross profit. Symbolically:

Cost of goods sold =

Net sales - Gross Profit

3. Direct expenses are incurred in order to make the goods ready and fit for sale. The various
direct expenses debited to trading account are wages/ wages and salaries, carriage/
freight inward, import and dock dues, Motive power, coal, gas, water, manufacturing
expenses, consumables stores, royalty and packaging's are also debited to trading account
if manufacturing account is not opened.

4. Trial Balance is statement of real, personal and nominal accounts whereas balance sheet
is a statement of only personal and real accounts. The objective of Trial Balance is to
check the arithmetical accuracy of the transactions recorded in ledger accounts whereas
the objective of Balance Sheet is to ascertain the financial position of the business.

5. The assets and liabilities are arranged either in order of liquidity or in the order of
permanence. The presentation of items in any of these two methods is called marshaling
and grouping of assets and liabilities.

6. Current assets are likely to be realised within one accounting year to discharge current
liabilities. But fixed assets are acquired and held permanently and used in the business
with the objective of making profit.
// 58 //
7. Gross profit is the result of total net sales less cost of goods sold whereas net profit is
result of all operating and non- operating incomes less all operating and non-operating
expenses. Gross profit is ascertained from Trading Account whereas net profit is ascertained
from Profit and Loss Account.

8. Opening stock, net purchases, direct expenses, wages or wages and salaries, import duty
are the items in the debit side whereas net sales and closing stock are the items in the
credit side of Trading Account.

9. Gross profit / loss salaries/ salaries and wages, interest, commission, discount, insurance,
depreciation, advertisements etc. are some items on debit side of the Profit and Loss
Account. Interest, Commission, discount can be on either side of Profit and Loss Account.

10. The difference between selling price and purchasing price is called gross profit. In other
words, the excess of net sales over cost of goods sold is called gross profit.

11. The difference between gross profit and indirect expenses is called net profit. It is a measure
of firm's net income during a given period of time.

12. Trading Account is the account prepared to ascertain trading profit/ loss. In other words, it
shows the gross profit/ loss. In the debit side opening stock, net purchases and direct
expenses and in the credit side net sales and closing stock are recorded.

13. Profit and Loss Account is the account prepared to ascertain the net profit/ loss of a business.
In the debit side all the operating and non-operating expenses and in the credit side all
operating and non-operating incomes are recorded

14. Indirect expenses are incurred to make the goods available to consumers. Indirect expenses
may be selling and distribution expenses, management expenses, financial expenses,
extra ordinary expenses and losses to maintain the assets in working order. These are
recurring in nature.

15. Fixed assets are acquired and held permanently in the business. These are used for more
than one accounting period to carry on the business and not meant for sale. Fixed assets
can be tangible and intangible.

16. Tangible fixed asset is the fixed asset having a physical existence, shape and size. For
example - plant and machinery, land and building, furniture etc. are some examples of the
fixed assets.

17. Intangible fixed asset are those fixed assets having no physical existence, shape and size
but can be used in the business for more than one accounting period for generating income.
For example- Goodwill, copyright, patent, trademark etc. are some intangible fixed assets.

// 59 //
18. Current asset is an asset which is used for converting into cash or bank within a maximum
period of one year. Current assets are in the form of cash, debtors, bank balances, bills
receivable and stocks. Current assets can be tangible or intangible.
19. Fictitious assets is not a real asset. Past accumulated losses or expenses being capitalized,
preliminary expenses incurred for promotion of the business, discount on issue of shares,
debit balance of profit and loss account are the examples of fictitious assets.
20. Liabilities repayable within one accounting period of business are called current liabilities.
Examples of current liabilities are sundry creditors, bills payable, outstanding expenses,
bank overdrafts etc. They are paid out of current assets.
21. Any income received in an accounting period which is to be earned in the coming/ next
accounting period is called income received in advance. For example a commission of
2,000 of 2021 is received in 2020. It is treated as a current liability.
22. There are two ways of arranging assets in balance sheet such as (i) order of liquidity (ii)
order of permanence. These methods are called the marshaling/ grouping of assets and
liabilities.
23. Fixed assets whose value are gradually reduced or which are physically depleted or
exhausted in the course of regular use are called wasting assets. These assets are finally
exhausted completely. Mines, quarries, oil wells etc. are examples of wasting assets.
24. Outstanding expenses refer to those expenses which are incurred but not paid during the
accounting year. The benefit of the expenses have already been received. For example
wages amounting 1,000 for 2021 will be paid in 2022.
25. A Prepaid expense is an expense which is paid in advance before enjoying its benefit. For
example insurance premium is paid in 2019 of 5,000 for the year 2020. It is treated as a
current asset.
26. Order of liquidity is a method of arranging assets and liabilities in the balance sheet. More
liquid assets are recorded first and then less liquid assets and the least liquid assets are
recorded at the last.
27. A liability that arises on the happening of a certain event is called a contingent liability. For
example, a case pending in the court may be a liability if judgment goes against the business.
Similarly, a discounted bills of exchange may be a liability if it is dishonored on due date.
28. A contingent asset is one which comes into existence on the happening of an uncertain
event. For example, the business may win a case pending in the court.'

29. A liability which will be paid back after a long period of time say five, seven or eight or ten
years is called long- term liability. For example Loan on mortgage, loan from financial
institutions like IDBI, ICICI, IFCI and bank loans for more than five years.

// 60 //
30. The credit customers are called sundry debtors. If the sundry debtors fail to pay the debt,
then amount of debt is treated as bad debts. The bad debt is a loss for the business.
31. The owner of the business keeps aside an amount out of the profit of the current year to
meet the possible/ expected bad debts in the next (accounting period) year. It is calculated
as a percentage on sundry debtors.
32. Provision for bad and doubtful debt given in the adjustment debited to Profit and Loss
Account and then deducted from sundry debtors in asset side of Balance Sheet. But if it is
given in the Trial Balance it is to be shown in the credit side of profit and loss account only.
33. The bad debts given in the Trial Balance is debited to Profit and Loss Account. If it is given
in the adjustment, it is debited to Profit and Loss Account and again deducted from Sundry
debtors in the assets side of Balance Sheet.
34. Closing stock given in the adjustment is credited to Trading Account and also shown in the
assets side of Balance Sheet. If it is given in the Trial Balance, it is only shown in the
assets side of Balance Sheet.
35. Prepaid expenses given in the Trial Balance will only be shown in the assets side of Balance
Sheet. But if it is given in the adjustment, it is first deducted from the concerned expenses
in the debit side of Profit and Loss Account and then shown in the assets side of the
Balance Sheet.
36. Outstanding expenses if given in the Trial Balance will only be shown in the liabilities side
of Balance Sheet. If given in the adjustment, it is added to the concerned expenses in the
debit side of Profit and Loss Account once and again shown in the liabilities side of Balance
Sheet.
37. Depreciation when given in Trial Balance is debited o Profit and Loss Account (shown in
the debit side of the P & L A/c). When depreciation is given in the adjustment, it is first
debited to Profit and Loss Account and then deducted from concerned asset in the assets
side of Balance Sheet.
38. Provision for depreciation given in the Trial Balance is to be shown in the liabilities side of
Balance Sheet. When provision for depreciation is given in the adjustment, it is debited to
Profit and Loss Account and again shown in the liabilities side of Balance Sheet.
39. Accrued income if given in the Trial Balance is to be shown in the assets side of Balance
Sheet. But if given in adjustment, it is added to the concerned income in the credit side of
Profit and Loss Account and again shown in the assets side of Balance Sheet.

40. Income received in advance given in Trial Balance is to be shown in the liabilities side of the
Balance Sheet. If given in the adjustment, it is subtracted from the concerned income in
the credit side of Profit and Loss Account and again shown in the liabilities side of Balance
Sheet.

// 61 //
41. An account being prepared to ascertain the costs of goods manufactured is called
Manufacturing Accounts. Small manufacturing concerns prepare the Manufacturing Account
along with Trading and Profit and Loss Account.

Important Note:
For treatment of any item in final accounts students should always keep in mind that:
(i) If the item is shown in Trial Balance, it is to be once treated by taking into either Trading
Account or Profit and Loss Account or Balance Sheet because one aspect of double
entry system is not complete.
(ii) If the item is shown in the adjustment, it means that no double entry system has been
done/ carried out. So it is to be treated twice by taking into Final Accounts.

42. Direct expenses are those expenses incurred from the stage of purchasing of raw material
to the stage of bringing the goods in salable conditions. These expenses are incurred to
make the goods fit for sale. It includes expenses like wages, carriage/ cartage / freight-
inward, import duty, octroi, manufacturing expenses.

43. Examples of deferred revenue expenditure are:

(i) Huge amount of advertising expenses incurred to introduce a new product.
(ii) Cost of research and experiments- Benefit is received over a number of years.
(iii) Preliminary expenses incurred to form a company which will give benefit in future.

44. Final statements are summary of accounts showing result of operation and financial position
of the business enterprise. It includes Trading account, Profit and Loss account, balance
sheet. Modern concept include cash flow statement.

45. Primary objectives of preparing final accounts are:

a) To present a true and fair view of profitability of business in financial terms
b) To present true and fair view of financial position of business.

46. Trading account is prepared to ascertain the gross profit/ gross loss by matching net sales
with cost of goods sold. If cost of goods sold is more than the net sales, it will result in
gross loss.

47. The liability which depends on the occurrance of future uncertain event is called contingent
liability. If uncertain events occurs, the contingent liability becomes a liability. As contingent
liability is not a real liability, it is not shown in the balance sheet.
48. Amount which cannot be recovered from the debtors is known as bad debts. Bad debt is
debited to profit and loss account. Hence, bad debt reduces the profit of the business.

// 62 //
49. Rent received in advance is unearned income. This rent relates to income of future year.
Its accounting treatment is as follows:

(i) Treatment in Profit and Loss Account In credit side

By Rent received
Less Advance rent 10,000

(ii) Treatment in Balance Sheet In liabilities side

Rent received in advance 10,000

50. Businessman usually allow cash discount to the debtors for prompt payment. The adjustment
entry is as follows:

Profit and Loss Account……......…..Dr

To Provision for discount on Debtors Account
(Being provision for discount on Debtors created)

51. Cost of goods sold = opening stock + Purchases + Direct expenses - Closing stock
= 12,000 + 1,12,000 + 6,000 - 15,000
= 1,30,000 - 15,000 = 1,15,000

52. Life insurance premium is personal expenses of the proprietor. If paid out of business
cash, it is not to be debited to Profit and Loss Account. It is to be debited to drawing
account and deducted from capital in the Balance-Sheet.

UNIT-II
Accounting for Depreciation
53. The method of charging depreciation on wasting assets is called Depletion. The wasting
assets are mines, quarries, oil wells etc.
54. The method of writing off intangible assets is called amortisation. Some of the intangible
assets are patents copy right, leasehold property etc. These have a limited period of life
and must be written over their life span.
55. It is estimated realisable value of an asset at the end of its useful life. The difference between
the cost of the asset and its depreciable cost is called the scrap or salvage or residual value.
56. The amount of depreciation remains the same under the straight line method and the
amount of depreciation goes on reducing year after year under written down value method.
Depreciation is calculated on the original cost of the asset under straight line method
while amount of depreciation is calculated on the written down value or book value of the
asset under written down value method.

// 63 //
57. The cause of depreciation are physical wear and tear, passage of time, exhaustion,
obsolescence and accident. Constant use of an asset is known as wear and tear. The
value of asset falls with the passage of time irrespective of its use.

58. Under the 'Provision for depreciation' method, depreciation is not a direct charge against
the fixed asset. The provision for depreciation account is not closed every year and it goes
on increasing till the end of life of the asset. The accumulated 'Provision for depreciation'
account is shown in the liability side of the Balance Sheet. In case of sale of asset this
account ( Relating to asset sold) is transferred to asset account.

59. The cost of the asset is to be charged to the Profit and Loss Account over its useful life.
Depreciation is charged as an expense to Profit and Loss Account to know the true profit.
It is deducted from the asset in Balance Sheet to know the true financial position. The
amount of depreciation being a non-cash expense is set aside for replacement of the old,
discarded asset by new one.

60. This method is based on the assumption that the efficiency of the assets goes on
diminishing as the assets grows older. So the amount of depreciation goes on diminishing
every year. The depreciation is charged at a fixed percentage on the written down value
of the asset.

61. Under this method depreciation is charged at a fixed percentage on the original/ acquisition
cost of the fixed asset. The amount of depreciation is fixed or equal throughout its useful
life. If depreciation of the asset over the years of useful life is plotted on the graph, it will
give a straight line.

62. Depreciation is a non-cash expense as the businessman pays nothing for depreciation.
Depreciation is applicable only to fixed assets. It is charged against profit.

63. The calculation of depreciation usually depends on three factors: acquisition / origin cost,
scrap value and estimated useful life of the asset. The estimated useful life of the asset is
expressed in terms of the number of calendar years, total number of units to be produced,
total number of working hours to work or run.

64. Formula for calculating depreciation under straight line method:

Depreciation = Cost of the asset - Residual value

Estimated life period

For example, cost of the asset 2,0,000. Its life period is 10 years. Residual value after 10
years 10,000.

2,10,000  10,000
Depreciation   20,000
10
// 64 //
65. Obsolescence means asset become obsolete or out dated. The assets are discarded
though these are in existence and in working condition. For example a new asset has
come to market with more efficiency, and low running cost. The old asset becomes
uneconomical for use. So old asset is discarded.

66. Two merits of straight line method of depreciation.

(i) Since same depreciation is charged every year, comparison of income of every
year will be easy.

(ii) The value of the asset will be zero at the end of its life.

Accounting from Incomplete Records

67. Single entry system of accounting is defined as a system of accounting in which double
entry system is not followed. As a rule, only records of cash and personal accounts are
maintained.

68. A 'Statement of Affairs' is a 'Balance Sheet' prepared under the single entry system on a
particular date. Complete information about assets and liabilities is not available from it.

69. The accounting records not completed as per the double entry principles are called
'incomplete accounting records'. The principles of double entry system are followed in
half-hazard or incomplete manner. For example once both aspects of a transaction is
recorded; sometimes one aspect of the transaction or not any aspect of the transaction is
recorded.

70. Under single entry system, Trial Balance cannot be prepared. Full information is not
available. So, there are chances of fraud and misappropriation in the business. Arithmetic
accuracy cannot be maintained without Trial Balance.

71. Trial Balance cannot be prepared under single entry system. Complete information regarding
the purchases, sales and other expenses is not available. Trading and Profit and Loss
Account cannot be prepared to ascertain the true profit earned or loss suffered by the
business.

72. No law of the country/ India recognizes single entry system of accounting. The legal
authorities like Income Tax, Goods and Service Tax, Courts do not recognize the records
of the system.

73. Single entry system is not popular because of its limitations: arithmetic accuracy of the
records cannot be checked, trial balance cannot be prepared, audit and internal check is
difficult etc.

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74. Under single entry, trial balance cannot be prepared whereas it can be prepared under
double netry. Single entry system is accepted only in non-corporate forms of business
organisations whereas double entry is universally accepted.

75. Accounting records may remain incomplete due to any one or more of the reasons
given below:

(a) The businessman may be ignorant of the concept of business entity concept.

(b) He may be ignorant or may not be interested to keep records in double entry system.

76. The limitations are:

(a) Arithmetic accuracy of the accounts cannot be checked;

(b) True financial performance (P & L A/C) cannot be ascertained;

(c) True financial position (B/S) cannot be determined.

77. Opening capital can be ascertained from incomplete records by preparing the statement
of affairs of the business at the beginning of the accounting period. The difference between
the total assets and liabilities at the beginning of the accounting period is called the opening
capital of business.

78. Closing capital of a business can be ascertained from incomplete records by preparing
the statement of affairs of the business at the end of the accounting period. The
difference between assets and liabilities at the end of the accounting period is the
closing capital.

79. The profit/ loss of the business can be ascertained from incomplete records in two different
methods such as:

(a) Statement of Affairs or net worth method. It is also called the pure single entry method

(b) Final Accounts system or conversion method. It is also called quasi single entry method.

80. It is difficult to ascertain the net worth of business. Financial performance (profit/ loss) and
financial position are not true. So goodwill cannot be valued.

81. Internal check is a system where by work of one employee is automatically checked by
another employee. Internal check is possible when there are sufficient staff, division of
work, rotation of duties, automatic machines etc. But under single entry system, such
facilities are not available. So internal check is not possible.

// 66 //
82. (i) Statement of affairs is prepared under single entry system. But balance sheet is
prepared under double entry system.

(ii) Statement of affairs is prepared on the basis of ledger accounts and estimates. But
balance sheet is prepared on the basis of trial balance.

83. The characteristics of single entry system are:

(i) It maintains only personal accounts and cash book. It ignores real accounts and
nominal accounts.

(ii) No uniformity system is followed.

(iii) This is suitable only for small organisations.

(iv) One has to depend on original vouchers for information.

UNIT-III

Accounting for Partnership firm

84. Partnership is the contractual relationship between/ among partners to carry on a business
and to share the profits. The business may be carried on by all or any one of them acting for all.

85. At least two persons are required for a partnership. The Partnership Act, 1932 does not
mention anything about the maximum number of persons who can be partners in a
partnership firm. But section 464 of the Companies Act, 2013, lays down that the numbers
of partners in a partnership firm must not exceed 50.

86. Indian Partnership Act, 1932 governs the partnership business in India. It came into force
on 1st October 1932 except Section 69 (dealing with the effect of non-registration of firms).
Section 69 came into force on 1st October 1933.

87. Profit and Loss Appropriation Account is prepared to show the distribution of profits among
the partners. All appropriations/ Distributions payable to the partners as per the partnership
deed are recorded in this account. The transactions between the firm and the partners are
mainly recorded in this account. It is an extension of the Profit and Loss Account.

88. A partnership firm can maintain the capital account of partners on the method of fixed
capital. In this method, the capital of partner's remains unchanged mainly the opening and
closing balances in the capital account remain the same. If additional capital is introduced,
then closing balance of capital will be different from the opening balance of capital.

// 67 //
89. Under the fixed capital account method, the transactions between the partners are recorded
in a separate account. That account is called current account. The transactions between
the firm and the partner recorded in the partner's current account are salary, fees,
commission, interest on capital, shares in profit, reserves, goodwill, drawings, interest on
drawings and share of losses.

90. Two accounts are maintained for each partner i.e. partner's capital account and partner's
current account. Capital introduced at the beginning and if during the year, are recorded in
capital account. Other current transaction like salary, fee and drawings are recorded in
current account.

91. It is a method of keeping the capital accounts of partners. The firm maintains fluctuating
capital account of partners, if it is written in the partnership deed. All transactions of a
partner are recorded in the capital account. Balance in capital account fluctuates with
every transaction.

92. In fluctuating capital account of partner's all the transactions like salary, fee, interest on
capital, drawings, interest on drawings are recorded along with opening balance of capital
and additional capital introduced.

93. Two accounts are opened under fluctuating capital account method. These are partner's
capital account and partner's drawing account.

94. The partnership deed may provide for the charging interest on drawings at a mutually
agreed rate. In the absence of the deed of partners, no interest can be charged on drawings.

95. The fixed capital of partners may change (i) when the partners invest additional capital
and (ii) withdraw the excess amount of capital with mutual consent.

96. The five items are opening (debit) balance of capital, drawings, interest on drawings, profit
and loss account debit balance and closing balance of capital.

97. The five items are opening (credit) balance of capital, additional capital during the year,
interest on capital, commission, fees, salary and profit and loss account credit balance,
closing balance of Balance Sheet.

98. Any amount taken by the owner / partner from the business for his domestic use is called
drawings. It is in the form of kind/ goods or in cash. It is deducted from capital in the
liabilities side of Balance Sheet.

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99. The rate of interest must be stated in the partnership deed. It must also be stated that in the
event of loss, interest to be paid or not. In the absence of partnership deed, interest on
capital is not allowed. If it is mentioned in the deed, interest on capital is payable only out
of profit.

100. If a partner provides loan to the firm at the time of needs for additional funds, he is
entitled to interest on loan amount at an agreed rate. If there is no agreement as to the
rate of interest, interest @ 6 p.a. is payable to partners as per provisions of the Indian
Partnership Act.

101. Goodwill is the reputation of a firm which is acquired in the curse of time. As per the time
value of money, goodwill may be defined as the present value of firm's anticipated excess
earnings. It is the excess of expected future profit over the normal profit of the firm.

102. Goodwill is an intangible asset, which cannot be seen or touched. But it has an intrinsic
value. It is an attractive force which brings in customers to old place of business.

103. The factors affecting goodwill are nature of business, suitable location, managerial talent,
degree of competition. High quality goods, better is goodwill. Better location, profit
expectation is more, so higher is goodwill. Better is the management, more is the goodwill.
When there is less competition, chances of profit is more and higher is the goodwill.

104. By taking profit as the basis, goodwill is valued in any of the three methods: (i) average
profit method, (ii) super profit method and (iii) capitalisation of profit method.

105. Normal profit of each year is calculated by deducting non-business and abnormal income
and adding abnormal loss and non-business expenses. The normal profits of the agreed
years are totaled. Then the total profit is divided by the numbers of years agreed.

106. The average of the normal profits is multiplied by the number of year's purchase. Number
of years purchase means the business is likely to earn profits at a similar rate for an
expected years in future for their past efforts and experiences.

107. The need for valuation of goodwill arises due to change in the profit sharing ratio among
partners, a new partner is admitted, an old partner's retirement or death, the old business
to be dissolved or sold, amalgamated with other firms, and conversion into a company.

108. The excess of actual profit over the normal profit is called super profit. When a similar type
of business earns profit at a certain percentage on the capital employed, it is called normal
profit. The businessman has the advantages of earning excess profit than normal profit in
the industry.

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109. Super profit is calculated by deducing the normal profit from the actual average profit.
Then super profit is multiplied with the number of years purchase in order to arrive at
goodwill. Super profit can also be capitalised to arrive at goodwill.

110. Capital employed refers to the total investments made in a business and can be defined in
a number of ways.

The three most widely used definitions are:

(i) gross capital employed means total of fixed and current assets.
(ii) net capital employed means total assets less current liabilities
(iii) proprietor's net capital employed means total assets less outside liabilities.

111. The capital employed in the beginning and at the end may be averaged to find out the
figure of average capital employed. Average capital employed may also be found out by
deducting half of the profits earned during the year from the capital at the end or half of the
profit may be added to capital employed at the beginning.

112. Average profit or super profit is capitalized at the normal rate of return for calculation of
goodwill. When average profit is capitalised, the method is called average profit method
of valuation. When super profit is capitalised, it is called super profit method.

113. Average profit is capitalized at the normal rate of return to find the normal investment in the
business. The normal investment in the business is also called the value of business. The
excess of value of business over the actual investment is called goodwill.

114. Some investors earn profit more than the normal profit being earned by others in the same
industry. The excess of actual profit over the normal profit is called super profit. Super
profit is multiplied with number of years purchase to find goodwill. Super profit can also be
capitalised to get goodwill.

115. Normal rate of return is not relevant in calculation of average profit where as it is required
in calculating super profit. Average capital employed is not relevant for average profit method
whereas it is required for super profit method.

116. Any change in the existing agreement of partnership, it is called reconstitution of the
partnership. As a result old agreement ends and new agreement comes in. In other words
it is a change in the relationship among partners of a firm.

117. The various circumstances leading to reconstitution of partnership are change in the profit
sharing ratio of all partners, admission of a new partner, retirement / death of an old partner,
amalgamation of a firm, and insolvency of an old partner.

// 70 //
118. When there is change in the profit sharing ratio, some existing partners are to surrender
some of their shares in favor of others. The ratio of surrender of the share of profit is called
sacrificing ratio.

Sacrificing ratio = Old share - New share

119. Gaining ratio is the proportion in which a partner receives higher share of profit than
his previous share. The ratio of gain in profit sharing ratio is called gaining ratio. It is
calculated as:

Gaining ratio = New share - Old share

120. Revaluation account is an account in which the revaluations of assets and liabilities are
recorded. It is also called profit and loss adjustment account. It is a nominal account.

121. Revaluation of assets and liabilities means to re-examine their value. The exercise of
revaluation is essential for a firm at the time of admission, retirement/ death of partners or
reconstitution of the firm.

122. The revaluation of assets and liabilities is necessary because any increase or decrease
in their values upto the date of change in profit-sharing ratio should be shared by the partners
in their old profit sharing ratio. The value of assets and liabilities must be up-to date on the
date of reconstitution of the firm.

123. An increase in the value of assets and decrease in the value of liabilities is gain to the firm.
Similarly, a decrease in the value of assets and increase in the value of liabilities is loss to
the firm. The net effect of revaluation of assets and liabilities is either profit or loss. It is
transferred to old partners' capital account in the old profit sharing ratio.

124. If the partners decide to continue the existing value of assets and liabilities at the time of
change in profit sharing ratio, the account opened is called Memorandum Revaluation
Account. The account is divided into two parts. First part is similar to Revaluation Account
and in the second part entries are reversed.

125. Revaluation Account is a nominal account. It is opened temporarily to find out the effect of
revaluation. Any increase in the value of assets or decrease in the value of liabilities is to
gain to the partnership firm, credited to Revaluation Account and vice versa.

126. Any undistributed reserves, accumulated profits shown in the existing balance sheet are
credited to old partner's capital account in the old profit sharing ratio if there is a change
in constitution of the firm. Accumulated losses are debited to old partners in old profit
sharing ratio.

The reserves and accumulated profit/ losses will not appear in Balance sheet.

// 71 //
127. Sometimes the amount of goodwill being brought in by new partner is not clearly mentioned.
The agreement is silent about the method of calculation of goodwill. Under such
circumstances, goodwill is hidden and calculated on the basis of new partner's share and
his capital.

128. In the first part of the Memorandum Revaluation Account, the capital account of old partners
increases and in the second part, capital account of all partners (including new) decreases
if there is profit on revaluation and vice versa.

129. Goodwill should be recorded in the books only when the new partner brings money or
money's worth over and above his hare of capital. The new partner should bring in cash for
his share of goodwill. If money is not paid by new partner for goodwill, it should not be
raised in the books.

130. This method is adopted when the new partner brings his share of goodwill in cash. The old
partners shares such cash paid by new partner in their sacrificing ratio.

131. The new partner's capital account is debited with his share of goodwill and old partner's
capital accounts are credited in their sacrificing ratio.
New Partners Capital A/c……………………Dr
To Old partner's Capital A/c
(Being share of new partner's goodwill shared by old partners)

132. Various Assets A/c……………………Dr

To Revaluation A/c
(Being increase in assets credited to Revaluation Account)

133. Revaluation A/c……………………Dr

To various Liabilities A/c
(Being increase in various liabilities debited to Revaluation Account)

134. (i) Cash A/c……………………Dr

To Premium /Goodwill A/c
(Being goodwill brought in cash)

(ii) Premium A/c……………………Dr

To Old partner's Capital A/c
(Being goodwill credited in sacrificing ratio)
// 72 //
135. In addition to the two journal entries given above in Q. No. 134, another entry for withdrawal
is given below.
Old Partner's Capital A/c……………………Dr
To Bank A/c
(Being goodwill withdrawn by old partners)

136. Goodwill is a way for compensating the old partner's for their sacrifice they make in favour
of new partner. When goodwill is paid privately by the new partner to the old partners it is
not recorded in the books of account of the firm. Hence, no entry is passed.

137. C's Capital 1/4th the share = 24,000

4
(i) Estimated total capital of the firm  24000 x  96,000
1
(ii) A and B's share profit = 24,000 × 3 = 72,000
(iii) Both combined capital of A and B = 40,000
(iv) Goodwill : (i) - (ii) = 72,000 - 40,000 = 32,000

138. Old ratio  P : Q :: 3 : 2, P's share = 3/5, Q's share = 2/5

New ratio P : Q : R :: 2 : 2 : 1; P's share = 2/5 ; Q's share = 2/5 , R's share = 1/5.

3 2 1
Q doesn't sacrifice. Only P sacrificed for R by   th share
5 5 5

139. (i) Cash / Bank A/c……………………Dr

To Premium /Goodwill A/c
(Being a portion of share of goodwill brought in cash)

(ii) Premium / Goodwill A/c……………………Dr (with brought in goodwill)

New Partner's Capital A/c…………………Dr (with not brought in goodwill)
To Old partner's Capital A/c
(Being total new's partner's share of goodwill transferred to old partner in sacrificing ratio)

140. If the date of drawings by a partner is not given, total drawing during the period is given,
then the interest on drawing is calculated at the agreed rate for a periodof six months. The
assumption is that drawing is made uniformly throughout the year. For example a partner
draws 50,000, the rate of interest being 6%.
6 1
Interest on drawings =  50,000 x x  1,500
100 2
// 73 //
141. The minimum number of partners in a partnership firm is two. Maximum number of
partners in a partnership firm is 50. But in banking partnership firm, maximum number of
partners is 10.

142. A person can be a working partner without contributing any capital. He will receive his
share of profit or loss with or without remuneration. However, it is possible if such proposition
is provided in limited liability partnership agreement.

143. Partnership arises out of contractual relationship among partners. The contract or agreement
among the partner may be oral or written. But always it is advisable to have the agreement
in black and white.

144. A minor is not a partner in true sense of partnership. He can be admitted to the benefit of
partnership with the consent of all partners. He is not personally liable for firm's debt. His
property is only liable.

145. The persons who have entered into partnership with one another are individually called
partners and collectively a firm. The partnership firm has no separate legal entity. It is
merely a collective name for the members composing it. The business is carried on under
the name of the firm.

146. Essential characteristics of partnership are:

 Partnershipis an association of two or more persons.

 Partnership arises because of agreement among partners.

 Partnership carries out some business.

 Partners share the profit of the business.

147. (i) No remuneration as salary or commission is payable to any partner.

(ii) Profit and losses are to be shared equally.

(iii) No interest is payable on capital.

(iv) Interest @ 6 % p.a. is payable on loan/ advances given by a partner.

(v) No interest is to be charged on drawings made by partners.

148. When fixed capital account method is followed, a separate current account is opened for
each partner in addition to capital account. Fixed capital means capital remains unaltered.
Current account record transactions like interest on capital, interest on drawings, salary or
commission to a partner, share of profit or loss.
// 74 //
149. Change in profit sharing ratio among the existing partners means reconstitution of the firm
with admission/ retirement/ death of a partner. In such situation one or more partner(s)
acquire share of profit from another partner(s) in a business. Aggregate gain by one (or
more) partner(s) is equal to aggregate amount of sacrifice by other partners(s). In other
words share of profit share of some partner(s) increases and other partner(s) decreases.

150. Factors affecting goodwill valuation are:

(i) Nature of Business- Firm dealing with quality product earn more profit and more
goodwill.
(ii) Suitable location- Business situated in central location earns more profit and more
goodwill.
(iii) Management talent- A well-managed firm earns more profit and acquires more
goodwill.
(iv) Degree of competition- If firm enjoy monopoly over product in market, it earns more
profit leading to higher goodwill value.

151. Hidden goodwill means the value of goodwill is not specified at the time of admission of a
partner. Hidden goodwill is the excess of desired capital of the firm over the actual combined
capital of all partners.
Calculation of Hidden Goodwill
A. Net worth (including goodwill) on the basis of capital brought in by incoming partner)
(Incoming partner's capital × Reciprocal of share of incoming partner)
B. (-) Net worth excluding goodwill (excluding goodwill of reconstituted firm, including
incoming Partner's Capital Account)
C. Value of Goodwill = A - B

152. The reason for revaluation of assets and liabilities is that any increase or decrease in
value of assets and liabilities upto the date of change in profit sharing ratio should be
shared by the partners in their old profit sharing ratio. For this purpose a revaluation account
is opened. Profit and Loss on revaluation is transferred to partner's capital account.

UNIT-IV
Accounting for Companies
153. Equity shares issued at discount or for consideration other than cash for providing know-
how or making available rights like patents, copyrights (intellectual property rights). It can
also be issued to directors and employees.
154. It is a technique used for marketing a public offer of equity shares of a company. It is a way
of raising more funds from the market.
// 75 //
155. Employees stock option (ESOP) means the option given to the whole time directors, officers
or employees of a company to purchase or subscribe shares at a future date at a pre-
determined price.
156. The terms/ conditions on which shares are to be issued by a company are given in the
prospectus. Shares can be issued either at par or at a premium. The issue price of shares
can be received by the company either in one/ more installments.
157. As per section 39 of Companies Act 2013, a sum equal to at least 5 % of the nominal
value of the shares must be received in cash as application money. As per SEBI, minimum
application money shall not be less than 25 % of issue price. Hence 25 % of issue price
cannot be less than 5 % of nominal value of shares.
158. Allotment of shares means acceptance of the share applications. An application for share
is an offer and allotment is the acceptance of that offer by the company. After the minimum
subscription is received, the Board of Directors proceeds to allot shares.
159. The share application money is converted into share capital account. On allotment, an
amount is payable called allotment money. After allotment of shares, a letter of allotment is
sent to applicants to pay the allotment money within a stipulated date.
160. The Board of Directors ask for the balance amount due on shares after receiving application
and allotment money in a number of installments. Each installment is called a call or share
call. The first installments is called share first call, and so like.
161. When shares are issued at a price more than the face value of shares, it is said to be
issued at premium. The premium so collected is credited to Securities Premium Account/
Securities Premium Reserve Account. Securities premium is collected either with
application or with allotment or with calls money.
162. Securities premium can be utilized for
(i) writing off the preliminary expenses of the company,
(ii) writing off the expenses of the commission paid / discount allowed on any issue of
debentures.
163. As per Sec 53 of the Companies Act, 2013, there is a prohibition on issued of shares at
discount. Sec 54 of the Companies Act, 2013 a company shall not issue shares at a
discount. Any share issued at discount is void. Only sweat equity shares may be issued at
discount.
164. The issued must be authorized by a special resolution passed by the company. The
resolution must specify the numbers of shares, current market price, consideration, if any,
and class of directors/ employees to whom equity shares will be issued. One year should
pass from the date of commencement of business to the date of issue.

// 76 //
165. Over subscription of shares arises when the number of shares applied for exceed the
number of shares issued. The allotment is made on a reasonable basis and to be restricted
to the number of shares issued.
166. In case of over subscription, prorata allotment may be made. In a prorata allotment, no
application is refused and no applicant is allotted the shares in full. Each applicant receives
the shares in some proportion of his application.
167. If any amount has been called by the company either as allotment or call money and a
shareholder has not paid that money, such amount not received is known as Calls in Arrears.
The company can charge interest @ 10 % p.a. for the unpaid period.
168. If any call has been made by the company, the shareholders pay the calls money and some
shareholders pay the amount of money for rest of calls. Hence calls money received
before the due date by the company is called Calls in Advance. The company pays interest
@ 12 % p.a. on calls in advance from the date of receipts to the due date.
169. The capital of the company is divided into small parts of equal amount. Each part is called
a share. Each share is given in a physical forms or non- physical form. Now a days share
is issued in electronic form.
170. The capital of the company form of business organisations is called share capital. As the
company needs huge capital, it is raised from the open market by issuing shares. The
total capital of a company is divided in to shares. So it is called share capital.
171. This is the maximum amount of capital the company is authorised to issue. It is stated in
capital clause of the Memorandum of Association. It is also called the registered capital.
172. A company issues new/ existing shares to the public for the first time. After an IPO, the
issuing company becomes a public listed company on a recognized stock exchange.
An IPO is also commonly known as 'going public'.
173. When a company makes a bulk allotment to individual, companies, venture capitalists or
any other person through a fresh issue of shares, it is called preferential allotment. Under
this method of allotment, the entire allotment is made to pre-identified people/ person at a
pre-determined price.
174. Share certificate is a document issued by a company signifying the ownership of number
of shares mentioned there in. As per section 53 (4) of the Companies Act, 2013, every
company is to issue the share certificates within a period of two months from the date of
allotment of shares.

175. A joint stock company is an incorporated, voluntary and autonomous association of a number
of persons. A company is an artificial legal person and its entity is distinct from its members.

// 77 //
176. A private limited company should have no minimum paid up share capital. The members
have no right to transfer share. The maximum number of shareholders is limited to 200. It
cannot invite public to subscribe to its shares and debentures.

177. A public limited company have no minimum paid up capital. It must have a minimum of
seven members. There is no restricted on transfer of shares and number of members.

178. A company can issue two types of shares. These are equity shares and preference shares.
Equity shares are of two types: equity shares with voting right and equity shares with
differential right to dividend, voting etc. Preference shares carry preferential rights on
dividend and repayment of capital.

179. As per section 2 (62), a one person company means a private limited company with only
one person as its member. The member must be a natural person, an Indian citizen and
resident of India.

180. A small company should be private limited company. Its maximum paid up capital is of
50 lakhs or such higher amount as prescribed. Its turnover should not exceed 2 crores
or higher amount as prescribed.

181. Shares carrying preferential rights as regards payment of dividend and repayment of capital
are called preference shares. Preference shareholders generally do not possess voting
rights. But they can vote when their interests are affected.

182. Equity shares are the ownership shares. These are the most risk bearing securities because
holders of these shares will get repayment of capital after meeting the claims of preference
shareholders, debentures holders and other creditors. They will get the dividend after
preference share.

183. The unpaid dividends go on accumulated for years and paid on a share called cumulative
preference share. The arrears of dividend will be paid when there is profit in subsequent
years.
184. It is a part of uncalled capital. It can only be called up in the event of winding up of the
company. It adds to the financial strength of the company.
185. It is the accumulated capital profits such as profit on sales of fixed assets, gain on forfeited
shares etc. All such capital gains/ profits are transferred to one account called capital
reserve account.
186. Forfeiture of shares means depriving a shareholder of his rights to ownership. The
ownership is cancelled as he does not pay the allotment or call money as asked by the
company.

// 78 //
187. The forfeited shares become the property of the company. Such forfeited shares can be
issued to new shareholders either at par or at a premium or at discount. It is called reissue
of shares / forfeited shares.
188. Stock is the aggregate of fully paid up shares. It is a set up shares put together. Stock can
be split into fractions of any amount without any regard / reference to the original face
value of shares.

189. The profit on reissue of forfeited shares is transferred to an account known as capital
reserve account. This account is shown in liability side of balance sheet under the head
'Reserves and Surplus'. Capital reserve can be used for writing off capital losses.

190. After allotment of shares, sometimes a shareholder is not able to pay further calls. He
returns his shares to the company for cancellation. Such voluntary return of shares to the
company by the shareholder himself is called surrender of shares. It has same accounting
treatment as forfeiture of shares.
191. When a public limited company is confident of raising capital through private's sources, it
does not invite the public for subscription of shares. Rather, it issue shares to selected
group of persons or institutional investors and is known as private placement of shares.
192. Sometimes a company issue shares to vendors for purchase of assets or purchase of
business or issue of shares to promoters or issue of shares to underwriters or any other
person for their services. Such shares are to be disclosed in the Balance Sheet under the
head 'Equity and Liabilities' and subhead 'share capital'.

193. Share Capital A/c……………………Dr (with the called up amount)

To Share Allotment A/c (Amount due but not paid on allotment)
To Share Call A/c (Amount due but not paid on call)
To Share Forfeiture A/c (Amount paid)
(Being Forfeiture of……………shares for non-payment of ………….)

194. An issue is called under subscription of shares when the public application for the number
of shares are less than the number of shares are offered. Allotment is to be made to all
applicants provided the minimum subscription has been received.

195. Lien on shares is an equitable charge on shares to secure any debt. The debt may be
recovered from shareholders of the company. The effect of lien is that the company is
given complete freedom to sell the shares under lien.

196. Share Application Account is a representative personal account. This account represents
the name of all persons from whom share application money is received by the company.

// 79 //
197. Redeemable Preference Shares are redeemable (repayment of capital) after a stipulated
period of time according to term of issue. The fully paid preference shares are only redeemed.
Preference shares are redeemed out of profit or out of fresh issue of share capital.

198. Participating Preference Shares are those shares, the holder of which get dividend in
addition to preference dividend at a fixed rate. He is entitled to get a share in the surplus
profit after paying dividend to equity shares shareholders at a particular rate.

199. Convertible Preference shares are those shares, the holders of which have a right to convert
their holding into equity shares after a specific period of time. This right of conversion must
be authorised by articles of association.

200. Expenses incurred on formation of company is known as preliminary expenses. It includes

legal expenses, registration fees paid etc. upto getting certificate of incorporation of
business. Such expenses are written off against statement of profit and loss, securities
premium.

201. A public limited company issue prospectus to the public for inviting applications to subscribe
to its shares. It contains the information like name and address of the registered office of
the company, name and address of the directors, objects of the company, consent of SEBI
for issue of shares, date of opening and closing of issue etc.

202. Equity shareholders participate in the divisible profits after payment of dividend to
preference shareholders. They are the real owner of the company. They have voting right
in the meeting of the company. At the time of liquidation, equity shareholders get back their
capital after paying to preference shareholders.

203. When shares are issued at a price more than the face value or nominal value of shares, it
is said to be issued at premium. If face value of share 10, shares issued at 15, shares
are issued at a premium of 5. The amount of premium is credited to securities premium
account. As per Companies Act, 2013 there is no restrictions on issue of shares at premium
and amount of premium.

204. The amount of securities premium is credited to a separate account called 'Securities
Premium Account' or 'Securities Premium Reserve Account'. As per schedule III of the
Companies Act, 2013, securities premium Reserve will be shown under subhead 'Reserve
and Surplus' under the head shareholder's fund. Securities Premium is capital profit.

205. Cumulative Preference shares are those shares the holder has the right to receive arrears
of dividend before any dividend paid to equity shareholders. Non-cumulative preference
share are those shares, the holder of which is not entitled to get arrear dividends out of the
profit of subsequent years.

// 80 //
 GROUP - B
SHORT TYPE QUESTIONS
B. SHORT QUESTIONS TO BE ANSWERED (3 MARKS EACH)

UNIT-I 14. What is the objective of preparing Final

Accounts?
Final Accounts of Sole Trade from of
Organization 15. W hy manufacturing account is
prepared?
1. What are the characteristics of Balance
Sheet? 16. How would you treat prepaid expenses
in Profit and Loss Account and Balance
2. What is the purpose of Balance Sheet?
Sheet when given in adjustment?
3. A Balance Sheet always agrees- why?
17. How would you treat Accrued Income in
4. Explain the ways of arranging assets Final Accounts if given in adjustments?
and liabilities in the Balance Sheet.
18. When closing stock is given inside Trial
5. What are the various types of liabilities? Balance and how it is treated in Final
Accounts?
6. Which items are shown on the debit side
of Trading Account? 19. Why Trading Account is prepared
before preparation of Profit and Loss
7. What is the cost of goods sold?
Account?
8. Which closing entries are recorded in
20. What is income received in advance
Trading Account?
and how it is treated in Final Account?
9. Mention the closing entries in Profit &
21. What entries are passed for bad debts
Loss A/c.
and bad debts recovered later?
10. How do you treat outstanding expenses
22. Narrate the current assets.
in Final A/c when given in adjustments?
23. W hy Balance Sheet is called
11. Why provision for doubtful debts is 'Statement' not an 'Account'?
opened / made?
24. What do you mean by interest on
12. How provision for discount on creditors drawings and how it is treated in Final
treated in Final Account? Accounts?
13. Why should depreciation be written off 25. Explain the fixed assets with suitable
on fixed assets? examples.

// 81 //
26. Explain the difference between capital 39. What are disadvantages of diminishing
expenditure and revenue expenditure. balance method of depreciation?

27. Explain the difference between capital 40. Distinguish between Depreciation
receipt and revenue receipt. Account and Provision for Depreciation
28. What is the difference between capital Account.
profit and revenue profit? 41. W rite the important features of
29. Distinguish between capital loss and depreciation.
revenue loss. 42. State the main causes of depreciation.
30. How is manager's commission on net 43. Which factors determine the amount of
profit calculated while preparing final depreciation?
account?
44. What are the needs for providing
31. Give the accounting treatment of goods depreciation?
destroyed by fire under different
45. Distinguish between straight line
situations with suitable example.
method and written down value method
32. Show the treatment of goods used for of depreciation.
personal purpose of proprietor.
46. Show the calculation of depreciation
33. Show the treatment of goods as free
under reducing balance method of
sample in final accounts with suitable
depreciation for three years with an
example.
imaginary example.
34. How can you ascertain cost of goods
47. Show the calculation of profit on sale of
sold? Explain with an example.
depreciable asset with an imaginary
35. What is adjusting entry? example.
UNIT-II 48. State the objectives for providing
Accounting for Depreciation and for depreciation.
Incomplete Records (single entry) 49. Explain the characteristics of
36. Write the advantages of straight line depreciation.
method of depreciation. 50. What do you mean by cost of an asset
37. What are the disadvantages of straight and working life of an asset?
line method of depreciation? 51. What do you mean by accounting from
38. Write the advantages of diminishing incomplete records or single entry
balance method of depreciation. system?

// 82 //
52. Give some examples of incomplete 68. What do you mean by sacrificing ratio?
records. 69. What do you mean by 'Profit and Loss
53. State the features of single entry system. Appropriation Account'?

54. What are the limitations of single entry 70. Give three factors affecting the value of
system? goodwill.

55. Give three differences between single 71. What do you mean by 'gaining ratio'?
entry and double entry. 72. Give a note on 'Average Profit Method'
56. Give three differences between of valuation of goodwill.
Balance Sheet and Statement of Affairs. 73. What is super profit method of valuation
57. How is profit ascertained by Single entry of goodwill?
system? 74. Give the circumstances where valuation
58. How profit is determined under net worth of goodwill is necessary.
method? 75. Why a new partner is admitted into a
59. Give the proforma of a Statement of continuing partnership firm?
Affairs. 76. How accumulated profit is treated on the
60. Give a format for ascertaining profit admission of a new partner?
under single entry. 77. How accumulated losses will be treated
61. Explain the advantages of single entry. at the time of admission of a new

62. Explain the limitations of single entry partner?

system of accounting. 78. Give six contents of Partnership Deed.

UNIT-III 79. Narrate the provisions of Partnership

Accounting for Partnership firm Act, 1932 in the absence of a

Partnership Deed.
63. What do you mean by 'Fixed Capital'
system? 80. Distinguish between Fixed Capital
System and Fluctuating Capital System.
64. What is 'Fluctuating Capital' system?
81. Distinguish between Profit and Loss
65. What do you mean by 'Current Account'
Account and Profit and Loss
in partnership?
Appropriation Account.
66. What is 'Revaluation Account' or' Profit
82. State the nature of goodwill.
and Loss Adjustment Account'?
83. How will you compute the commission
67. W hen and why 'Memorandum
payable to a partner based on net profit?
Revaluation Account' is opened?
// 83 //
84. Mention item that may appear on the 96. What are the provisions of Section 53
credit/ debit side of the current account of the Companies Act, 2013 regarding
of a partner when capitals are fixed. issue of shares at discount?

85. Distinguish between revaluation 97. State the different methods of issuing
account and memorandum revaluation Sweat Equity Shares.
account. 98. What is the treatment of forfeiture of
86. Distinguish between sacrificing ratio shares issued at premium?
and gaining ratio. 99. Give three differences between
87. Name the situation when reconstitution preference shares and equity shares.
of partnership takes place. 100. What is reissue of forfeited shares?
88. Give a specimen of revaluation account. 101. State any three differences between
89. X and Y are two partners, drew for private limited company and public
private use 2,00,000 and 1,00,000 limited company.
respectively. Interest chargeable is 10% 102. Explain the difference between calls-in-
p.a. on drawings. What is the total arrear and calls-in-advance.
interestchargable to X and Y?
103. State the provision of Table F of
90. X advanced a loan of 2,00,000 to the Schedule I of the Companies Act,2013
partnership firm, without any agreement which is applicable in absence of the
with his co-partner Y on 01.07.2020. Articles of Association.
Calculate the amount of interest on loan
104. State the provision of Joint application.
payable by the firm to X for the year
ending 31st March 2021. 105. Explain the provision relating to
'Rejection of express applications'.
UNIT-IV

Accounting for Companies

91. What do you mean by equity shares?

92. What do you mean by preference

shares?

93. What do you mean by stock?

94. Distinguish between shares and stock.

95. How securities premium be used by the

company?

// 84 //
 ANSWER KEYS
GROUP - B
B. SHORT QUESTIONS TO BE ANSWERED (3 MARKS EACH)

UNIT-I
Final Accounts of Sole Trade from of Organization
1. The characteristics of a Balance Sheet are as follows:
 Balance Sheet is a Statement not an account.
 It is a summary of balances of assets and liabilities.
 Both sides of balance sheet tally/ are equal.
 It shows financial position.
2. The purpose of preparing Balance Sheet is to :
 Ascertain the nature and value of assets.
 Ascertain the nature and extent of liabilities.
 Ascertain the financial position/ solvency.
3. As per accounting equation concept, assets are equal to liabilities plus capital. The total
investment must be equal to the total funds at the disposal of the business. The investment
of a business cannot be more than its funds. So balance sheet will agree always.
4. There are two ways of arranging assets and liabilities in the Balance Sheet.
 Order of liquidity - In this way or method, the assets which are more readily converted
into cash recorded first and which are less readily or cannot be so readily converted
into cash will be recorded next and so on. Similarly, the liabilities which are to be
paid off first will be recorded first and those payable in late or later will be recorded
next and so on.
 Order of permanence- In this method of recording more permanent assets or liabilities
are recorded first, less permanent assets or liabilities are recorded next and so on.
5. The various types of liabilities are-
 Fixed liability like capital, reserve and surplus.
 Long term liability like debentures of a company, mortgage loan.
 Current liability like sundry creditors, bills payable and bank overdrafts etc.
 Contingent liability like bills receivable discounted before maturity, liability for a case
pending in the court.

// 85 //
6. The following items are shown on the debit side Trading Account:
 Opening Stock
 Net purchases
 Direct expenses like wages, carriage inward, import/ export duty, motive power, coal,
gas and water, manufacturing expenses, consumable stores, royalty, packaging etc.

7. The cost incurred for bringing the goods/ merchandise into fit for selling conditions is called
cost of goods sold. The difference between sales and gross profit/loss is cost of goods
sold. Cost of goods sold can be ascertained as follows:

Cost of goods sold = Opening stock + Net purchases + Direct expenses - Closing stock

8. The closing entries in the Trading Account are:

 In the debit side

Trading A/c…………..Dr
To Opening Stock A/c
To Purchase A/c
To Direct Expenses A/c
To Sales Return A/c

 In the credit side

Sales A/c …………………Dr
Closing Stock A/c ……………..Dr
To Trading A/c

 If gross profit
Trading A/c……………Dr
To Profit and Loss A/c

 If gross loss
Profit and Loss A/c…………..Dr
To Trading A/c

9. The closing entries in the Profit and Loss A/c are:

 In the debit side

Profit and Loss A/c………………….Dr

To indirect Expenses & Losses

// 86 //
  In the credit side
Revenue Income/ gains A/c…………….Dr
To Profit and Loss A/c

 For net profit

Profit and Loss A/c……………..Dr
To Capital A/c

 For net loss

Capital A/c …………………..Dr
To Profit and Loss A/c

10. The adjustment entry for outstanding expenses is:

Particular Expenses A/c……………Dr
To Outstanding Expenses A/c

Outstanding expense is added to particular expenses in the debit side of Trading A/c (if it
is direct expenses) or in the debit side of Profit and Loss A/c (if it is indirect expense).
Again it is shown in the liability side of Balance Sheet. It is a current liability to be paid in
the next accounting period.

11. There is every possibility that some of the sundry debtors may not pay their debt in full. The
total credit sales cannot be collected. So a provision is made for in the profit and loss
account to keep the income in a conservative position. If provision is created and deducted
from income (P & L A/c), net profit is justified and the sundry debtors are shown at their net
realisable value in the Balance Sheet.

12. Provision for discount account is recorded in the credit side of Profit and Loss Account
and again it is subtracted from sundry creditors in liabilities side of Balance Sheet. The
adjustment entry is:

Provision/ Reserve for Discount on Creditors Ac………………..Dr

To Profit and Loss A/c

13. Depreciation should be written of in order to:

 Ascertain the true profit or loss of the business.

 Show true financial position of the business.

 Show the fixed asset at its book value.

 Give correct information to the creditors, bankers of the business.

// 87 //
14. The main objective of preparing Trading Account is to ascertain the trading results, i.e.
gross profit/ loss. Profit and Loss Account is prepared to determine the net profit/ loss.
Balance Sheet is prepared to show the financial position of the business on the last date
of the accounting period.

15. When the size if a manufacturing undertaking is small, it is unable to install cost accounting
procedures. So that undertaking wants to know the cost of goods produced by preparing
manufacturing account. In addition, they prepare Trading and Profit and Loss Account and
Balance Sheet.

16. Prepaid expenses means the expenses is paid in cash for the next accounting period but
the benefit of the expenditure is not received. The adjustment entry is:

Prepaid expenses A/c………………..Dr

To Particular Expenses A/c

In the debit side of Profit and Loss Account, prepaid expense is deducted from the particular
expense and again it is shown in the asset side of Balance Sheet.

17. Accrued income means income earned but not received during the current accounting
period. The adjustment entry is:

Accrued Income A/c…………..Dr

To Particular Income A/c

In the credit side of the Profit and Loss Account, accrued income is added to the particular
income and again it is shown in the assets side of the Balance Sheet.

18. When closing stock is adjusted against purchases it will appear in Trial balance. In such a
situation, closing stock is not shown in the credit side of Trading Account and is shown in
the assets side of the Balance Sheet only.

19. Trading Account discloses the trading results i.e. gross profit or loss. Gross profit/ loss is
the opening entry of Profit and Loss Account. At the time of preparing Profit and Loss
Account, gross profit is to be recorded first. Then other indirect expenses and incomes
are entered in the Profit and Loss Account to find out net profit/loss of a business. Hence,
prior to the preparation of Profit and Loss Account, Trading Account is prepared.

20. Any income received in cash before it is being earned is called income received in advance.
If income received in advance is given in the adjustment, it is deducted from the particular
income in the credit side of Profit and Loss Account and again shown in the liabilities side
of the Balance Sheet. If it is given in the Trail Balance, it is to be shown in the liabilities side
of the Balance Sheet only.
// 88 //
21. The entries are :

 For bad debts

Bad Debts Account………………………..Dr

To Sundry Debtors Account

 For bad debts recovered

Cash A/c……………………….Dr

To Bad Debts Recovered Account

22. Current assets are required for converting them into cash or near cash during the normal
business operation. Current assets are also known as floating assets. For example cash,
bank, debtors, bills, receivables, inventory, short term investment etc.

23. An account has two sides called debit side and credit side. The left hand side is denoted
as debit side and right hand side is denoted as credit side of an account. 'To' and 'By' are
prefixed to the postings in an account in the debit side and credit side respectively. A
Balance Sheet has 'assets' side and 'liabilities' side. Its left side is 'liabilities' side, right
side is 'assets' side and not prefixed by 'To' or 'By'. So Balance Sheet is a statement not
an account.

24. Interest is charged on drawings by the partner's / proprietor. It is gain to the business and
credited to Profit and Loss Account. Interest on drawings is added to drawings and deducted
from capital.

25. Assets acquired for use and not for sale are known as fixed assets. Fixed assets are held
in the business for generating income by using Current Assets for a long period. Examples
are land, building, furniture, goodwill, patent etc.

26. Capital expenditure improves the earning capacity of the business. Revenue expenditure
is incurred to maintain the earning capacity.

Capital expenditure is incurred to acquire fixed assets for operation of business. Revenue
expenditure is incurred for day to day operation of business.

Capital expenditure is non-recurring in nature. Revenue expenditure is recurring in nature.

Capital expenditure gives the benefit for more than one accounting period. Revenue
expenditure gives benefit during one accounting year.

27. Capital receipt implies an obligation to return the money or sale of fixed asset. For example,
capital invested in the business, long term loan, sale of fixed assets are capital receipt.

// 89 //
 But revenue receipt does not imply obligation to return money or is not inform of sale of
fixed assets. For example money received on sale of goods, interest, commission etc.

Capital receipts are reflected in the balance sheet. Revenue receipts are transferred to
profit and loss account.

28. Profit earned on sale of fixed assets, premium on issue of shares and debentures, profit
on re-issue of forfeited shares, profit prior to incorporation of the company are capital
profits. Profit earned during normal course of business is called revenue profit.

Capital profits are usually shown as capital reserve on the liabilities side of the balance
sheet. Revenue profit earned is not transferred to capital account. It is kept in a separate
account known as surplus account.

Capital profits are non-recurring in nature. Revenue profits are recurring in nature.

29. Loss incurred on sale of fixed asset, discount on issue of debentures, premium on
redemption of preference shares or debentures are called capital losses. Revenue losses
are incidental to the day to day business operation. These are excess of revenue
expenditure over the revenue income, loss of stock by fire, bad debts, misappropriation of
goods are treated revenue loss.

Capital losses are non-recurring in nature. Revenue losses are recurring in nature.

30. Manager's commission is calculated as percentage of profit either before charging such
commission or after charging such commission.

Commission payable (Before charging such commission):

Manager's commission = % of commission × Net Profit before charging such commission

100

Commission payable (After charging such commission):

Manager's commission = % of commission ×Net Profit before charging such commission

(100 + % of commission)

31. Goods lost by fire 2,00,000. Give accounting treatment in final accounts-

a) If goods were not insured.

b) If goods were fully insured.

c) If goods were partially insured. (70 %)

// 90 //
 Accounting Treatment

Treatment in Trading Account

Dr. Cr.

Particulars ( ) Particulars ( )
By loss by fire A/c
(If goods not insured) 2,00,000

By Loss by fire
( If goods fully insured) 2,00,000

By Loss by fire
( Goods partially insured) 2,00,000

Treatment in Profit and Loss Account

Dr. Profit and Loss Account Cr.

Particulars ( ) Particulars ( )
To loss by fire A/c
(Goods not insured) 2,00,000

No Entry
( Goods fully insured)

To Loss by fire
(Goods partially insured- 70 %) 60,000

Treatment in Balance Sheet

Dr. Balance Sheet Cr.

Liabilities ( ) Assets ( )
No Entry
(If goods not insured)

Insurance claim
( Goods fully insured) 2,00,000

Insurance claim
( 70 % of 2,00,000) 1,40,000

// 91 //
32. Goods used by proprietor for private use is called drawing of goods by proprietor.

The Adjustment entry is as follows:

Drawing Account………………………………….Dr

To Purchase Account

(Being goods withdrawn for personal use)

Accounting Treatment

Shown as deduction from purchase

(i) Treatment in Trading Account
account
Deducted from Capital Account as
(ii) Treatment in Balance Sheet
drawings of goods

33. Goods distributed as free sample 10,000. The adjustment entry for goods distributing as
free sample.
Advertisement Account……………………………….................….Dr 10,000
Or
Fee Sample Account………………………………….................….Dr 10,000
To Purchase Account……………….....………………………………10,000

Accounting Treatment

Shown as deduction from Purchase

(i) Treatment in Trading Account
Account 10,000
Treatment in Profit and Loss Shown advertisement expenses on
(ii)
Account the debit side 10,000

34. Given : Opening stock 30,000, Purchases 1,20,000, Purchase return 10,000, Sales
1,80,000, Sales Return 20,000, Direct expenses on purchase 20,000, Closing stock
40,000.

Cost of goods sold = Opening Stock + Net Purchases + Direct Expenses on Purchase -
Closing Stock

Cost of goods sold = 30,000 + ( 1,20,000 - 10,000) + 20,000 - 40,000

= 30,000 + 1,10,000 + 20,000 - 40,000
= 1,60,000 - 40,000 = 1,20,000

// 92 //
35. An adjusting entry is simply an adjustment in the books of accounts to make the financial
statement more accurately reflect the income and expenses. This can be at the end of the
month or at the end of the year. For example salary outstanding 10,000.

Adjustment entry for recording outstanding salary:

Salary Account………………………………….Dr 10,000

To Outstanding Salary 10,000

(Being outstanding salary recorded)

Accounting Treatment

Add to salary on the debit side

(i) Treatment in Profit and Loss Account
10,000
Shown in liabilities side
(ii) Treatment in Balance Sheet
outstanding salary 10,000

UNIT-II

Accounting for Depreciation and For Incomplete Records (single entry)

36. Advantages of straight line method of depreciation are:

 This method is very simple to understand and easy to calculate depreciation.

 This method is suitable for assets whose life can be accurately estimated such as
lease hold property, patents, trademarks etc.

 The book value of an asset will be reduced to zero or to scrap value at the end of its
life time.

 The same amount of depreciation is charged every year which makes the comparison
of income of different years.

37. The disadvantages of straight line method are as follows:

 This method wrongly assumes that the asset has same utility in different accounting
periods. But the efficiency of the asset is reduced every year.

 The repairs and maintenance cost go on increasing as the assets grew older and its
depreciation remains the same. So total charge/ debit to P & L A/c increases year
after year as the asset becomes older and older.

 This method is not recognized by Income Tax Department.

// 93 //
38. Advantages of diminishing balance method are as follows:
 This method is logical in charging reduced amount of depreciation from year to year
in proportionate to the service/ working capacity of the asset.
 In case of additional purchase of assets, calculation of depreciation does not create
any problem.
 It is recognized by Income Tax Department.
39. Disadvantages of diminishing balance method of depreciation are as follows:
 The book value of the asset can never be reduced to zero.
 The fixation / calculation of the rate of depreciation is difficult.
 It does not take into account the loss of interest due to investment in the asset.
 It takes a very long time to write off the asset.
40. Distinguish between Depreciation Account and Provision for Depreciation Account.
Depreciation Account
i) It is a nominal account.
ii) It is recorded in the debit side of P & L A/c.
iii) At the time of charging depreciation asset A/c is credited.
iv) Depreciation A/c always shows debit balance.
Provision for Depreciation Account
i) It is a provision account always showing a credit balance.
ii) It is recorded in the liabilityside of Balance Sheet.
iii) At the time of charging deprecation provision for depreciation account is credited.
iv) Provision for Depreciation A/c always shows credit balance.
41. The features of depreciation are:
 Depreciation is the decrease in the value of a fixed asset.
 It is a non-cash/ non-monetary expenses.
 Depreciation is a continuous and gradual decline in the utility value of an asset.
 The total amount of depreciation will always be equal to or less than the book value
of the asset.
 The calculation of exact depreciation is impossible. Only estimation is made for
charging depreciation of fixed assets.

// 94 //
42. The main cause of depreciation are:

 Wear and Tear- Fixed assets get depreciated because of constant use.
 Passage of time- The value of a fixed asset is reduced because of passage/ efflux
of time.
 Exhaustion- Wasting assets get depreciated because of exhaustion of stock. For
examples - mines, quarries, oil wells get exhausted after every ton of minerals raised/
extracted.
 Obsolescence- Due to technological development and new invention, the value of an
existing asset may decrease.
 Accident- An accident will reduce the value of the asset.

43. These following factors determine the amount of depreciation:

 Cost of the assets: The cost incurred on the acquisition of the asset and other costs
incurred to put the asset in the useful condition.

 Estimated useful life: The useful life of the fixed asset is to be predicted in number of
years, hours, unit of output etc.

 Scrap or salvage value: The scrap value of the asset is deducted from its acquisition
cost. The difference between the cost of the asset and scrap value becomes the
depreciable cost of the asset.

44. The need for/ objectives of providing depreciation are:

 To ascertain the true profit/ loss.

 To show the correct financial position.

 To facilitate the replacement of the existing fixed asset.

 To save Income Tax.

45. Distinction between straight line method and written down value method of depreciation.

Straight Line Method

(i) The rate and amount of depreciation remain the same year after year.

(ii) Depreciation is calculated as percentage on original cost.

(iii) The book value of the asset becomes zero at the end of useful life of the assets.

(iv) The total amount of repairs and depreciation are more in older years of the assets life.

// 95 //
 Written down value Method
(i) The rate remains same but amount of depreciation reduces year after year.
(ii) Depreciation is calculated as a percentage on book value.
(iii) The book value of the assets will never be zero at its end of useful life.
(iv) The total amount of repairs and depreciation are relatively lesser in the older years
of the assets life.

46. For example cost of an asset is 2,00,000. Rate of depreciation is 10%. Under reducing
balance method, the depreciation is calculated as under:

Cost of the asset 2,00,000

Less: Depreciation for 1st year
(10 % of 2,00,000) 20,000

Written down value in the beginning of 2nd year 1,80,000

Less : Depreciation for 2nd year
(10 % of 1,80,000) 18,000

Written down value in the beginning of 3rd year 1,62,000

Less: Depreciation for 3rd year
(10% of 1,62,000) 16,200

Written down value at the end of 3rd year 1, 45,800

47. A vehicle is purchased for 5,00,000. Depreciation is provided @10% p.a. on straight line
method. The vehicle is sold for 3,80,000. The date of purchase is 1st January 2019. The
date of sale is 31st December 2021.

Calculation of Profit on Sale

A. Total cost of the vehicle 5,00,000

B. Depreciation from the date of purchase to date of sale 1,50,000

( 5,00,000 × 10 × 3)
100
C. Book value on the date of sale 3,50,000
D. Selling Price 3,80,000
E. Profit on sale (D- C) 30,000

// 96 //
48. The objective of providing depreciation are as follows:
a) True profit of the business cannot be ascertained without providing the depreciation.
b) True and fair view of the financial position of the business will not be revealed as
asset will be overstated.
c) Depreciation is to be provided to replace an old asset with a new one.
d) Depreciation is charged at a fixed rate prescribed by Income Tax. Profit and losses
are calculated after charging depreciation to calculate tax liability.
49. The characteristics of depreciation are as follows:
a) Depreciation is a non-cash expense.
b) The term depreciation is applicable to fixed assets.
c) Depreciation is a charge against profit.
d) Depreciation is charged on the asset whether the asset is used for full year or part of
the year.
e) Depreciation is a continuous fall in the value of asset till its entire cost is exhausted.
50. Cost of an asset implies cost incurred in acquisition of the asset and cost incurred to put
the asset into useful condition. For example, a machinery is purchased for 5,00,000,
transportation cost incurred 10,000, Installation expenses 30,000. For the purpose of
depreciation, the cost of the asset is 5,40,000. Working life of an asset means either
number of year the asset is expected to be used or number of units to be produced or
number of working hours of asset during its lifetime. It can also be number of kilometer to
run during useful life.
51. The term 'single entry system' can be defined as a system of book keeping in which double
entry system is not followed completely. It is not exactly double entry system. It is called
accounting from incomplete records because accounting records are not completed
according to double entry principles. Double entry system is followed in a half-hazard
manner/ incomplete manner.
52. Some examples of incomplete records may be:
 In some cases, both aspects (debit and credit) of transactions are recorded for
example, cash received from debtors and cash paid to creditors.
 In some cases only one aspect (either debit or credit) of the transactions are recorded.
For example: Cash purchases, cash sales, payment for expenses etc.
 In some cases no aspect (neither debit nor credit) of a transaction is recorded. For
example writing of depreciation, deferred revenue expenditure is not at all recorded
in the books of account.

// 97 //
53. The features of single entry system are:

 Maintenance of personal accounts.

 Maintenance of cash book in crude/ raw form.

 Dependency of original vouchers.

 No uniformity.

 Suitable to small business units.

54. The limitations are:

 Arithmetic accuracy cannot be checked.

 True profit cannot be ascertained.

 True financial position cannot be presented.

 It is very difficult to make valuation of the business.

 It has no internal check system.

 It is difficult to conduct audit.

 It is not recognized by law.

55. The differences are:

Single entry system

(i) It is not based on any specific principles and assumptions.

(ii) It does not record both aspects of transactions.

(iii) It usually records cash and personal accounts.

Double entry system

(i) It is based on certain strong principles and assumptions.

(ii) It records both aspects (debit and credit) of transactions.

(iii) It records all types of accounts, i.e. Personal, Real and Nominal.

56. The differences are:

Balance Sheet

(i) It is prepared under double entry system.

(ii) It is prepared from Trial Balance.

(iii) It is always prepared at the end of the accounting period.

// 98 //
 Statement of Affairs

(i) It is prepared under single entry system.

(ii) It is prepared from some ledgers and estimates.

(iii) It is prepared either at the end or beginning of the accounting period.

57. Under the system, two methods are used to ascertain profit such as 'Net worth Method'
and 'Conversion Method'. In net worth method, profit is determined by comparing the capital
at the beginning and at the end of the accounting period. In conversion method first of all
single entry is converted/ changed into double entry by determining the missing items.
Then profit/ loss is ascertained by preparing Trading, Profit and Loss Account.

58. Profit under net worth method is determined as follows:

 Prepare statement of affairs at the beginning of the accounting period to find out
capital at the beginning.

 Prepare statement of affairs at the end of the accounting period to find out capital at
the end.

 Find adjusted capital at the end of the accounting period by adding drawings or
subtracting further capital.

 The difference between the adjusted capital and beginning capital is the profit or loss.

59. The proforma of a Statement of Affairs is given below:

Liabilities Amount ( ) Assets Amount ( )

Sundry creditors ? Cash in Hand ?
Bills Payable ? Cash in Bank ?
Outstanding Expenses ? Sundry Debtors ?
Bank Overdraft ? Bills Receivable ?
Income Received in
? Stock ?
Advance
Loans ? Prepaid Expenses ?
Capital (Balancing figure) ? Accrued Income ?
Fixed Assets ?

// 99 //
60. Format for showing profit/ loss for the period ending:

?
Capital at the end of the accounting Period ?
Add : Drawings (whether cash /kind) (+)

Less: Adjusted capital introduced during the period ?

Adjusted capital at the end of the period ?
(-)
Less: Capital at the beginning of the period ?

Profit/Loss for the accounting period ?

61. Maintaining the accounts under double entry system involves a lot of expenditure. Again
the accountant must have clear knowledge about the system. The small business units
cannot afford for it. So the businessman maintains the cash book in a rudimentary form
and personal accounts of debtors and creditors. So it is better to follow single entry and
earn livelihood.

62. Following are the limitations of single entry system:

a) Trial Balance cannot be prepared. Hence arithmetic accuracy of the accounts cannot
be checked.
b) In the absence of complete information true profit or loss of the business cannot be
ascertained.
c) True financial position of the business cannot be ascertained as correct profit cannot
be ascertained and correct assets and liabilities cannot be ascertained.
d) Legal authorities like Income Tax, Court, other Tax authorities do not recognise the
records under this system.
e) Goodwill of the business cannot be valued as it is not possible to ascertain the net
worth of the business.

UNIT-III
Accounting for Partnership firm

63. In 'fixed capital' system two accounts are opened for each partner such as partner's capital
account and partner's current account. The capital accounts of partners are credited with
the initial contribution to the business as capital and subsequent by additional capital if
any. The share of profit /loss from the business, drawings, interest on capitals, salary,
commission etc. are recorded in current accounts of the partners.
// 100 //
64. In 'fluctuating capital' system one account for each partner is opened called partner's capital
account. All entries relating to partner's contribution, drawings, interest on capital, interest
on drawings, salary, commission, profit/ loss etc. are recorded in this account. The balance
of capital accounts of partners at the end of the accounting period may be more or less
than the balance of capital at the beginning of the accounting period. Partners drawing
account may be opened for drawings in cash or kind and interest on drawings which are
debited to partner's capital account.

65. In fixed capital system, partner's current account is opened for each partner in addition to
partner's capital account. The entry for share of profit/ loss, drawings, salary, interest on
capital, interest on drawing commission etc. are made in each partner's current account.
Current account is subjected to fluctuation and may show either a credit or debit balance.
But the capital accounts of partners will always show credit balance.

66. The account is opened for revaluation of assets and liabilities in the event of admission or
retirement or death of a partner and at the time of change in the constitution of the firm. It is
necessary to open revaluation account whenever there is a change in the profit sharing
ratio of partners. Increase in the value of assets and decrease in the value of liabilities are
credited to revaluation account. Any decrease in the value of the assets and increase in
the value of liabilities are debited to this account. The difference of the debit total and
credit total of the revaluation account is known as profit/ loss on revaluation. The profit/
loss on revaluation is transferred to partner's capital/ current accounts in their old profit
sharing ratio.

67. If all the partners including the newly admitted partners decide not to show the revised
values of assets and liabilities in the Balance Sheet, at that time Memorandum Revaluation
Account is opened. The first part is for revaluation assets and liabilities and any profit /
loss transferred to old partners in old ratio. The second part is the reverse entries of first
part and transferred to all partners including the new one in new profit share ratio.

68. When a new partner is admitted into the partnership he is entitled to get a share of the firm.
For this, old partners have to sacrifice a fraction of their share in favour of the new partner.
Sacrifice made by the old partners can be determined by deducting their new share from
their old share.

69. This account is opened to distribute the profit among partners. The net profit is transferred
to the credit side of this account as the first entry. Other items like interest on capital, salary
commission etc. are debited and items like interest on drawings are credited to this
account. The balance of profit in this account at the end of the accounting period is distributed
among partners in the profit share ratio or equally.

// 101 //
70. The following factors affect the value of goodwill:

(i) Location- A favorable location of a business has positive effect on the value of goodwill.

(ii) Time- A business continuing over a period of time has more goodwill since it has
more patronized customers.

(iii) Nature of business - The nature of a business such as trading in goods, risk involved,
monopolistic competition etc. will affect the value of goodwill.

71. When a partner retires or dies, that retiring or deceased partner sacrifices his shares to
the existing or surviving partners. Those existing/ surviving/ continuing partners gain in
their profit sharing ratio. The gain made by such continuing partners may be at their new
profit sharing ratio or may be some other ratio. In other words, gaining ratio is the proportion
in which a partner receives an increased share of profit than his earlier share. The ratio of
gain of profit sharing ratio is called gaining ratio. It is calculated as:

Gaining Ratio = New Share - Old Share

72. Under this method, the average annual profit of a specified number of years past / previous
years is multiplied by agreed number of years say, 1, 2,3 or 4 to arrive at the value of the
goodwill. The assumption of this method is that the average profit will be maintained in
some foreseeable future years. Before calculation of average profit each year's profit should
be adjusted by taking into account abnormal profits/ losses, non-business incomes/
expenses etc.

73. Under this method, goodwill is calculated for a few years purchase of super profit. Super
profit is the excess of actual profit over normal profit. It is calculated by this method a
follows:

Goodwill = Super profit × Number of years purchases. Sometimes super profit is also
capitalized.

74. In a partnership firm, the need for valuation of goodwill arises in the following circumstances:

 When there is a change in profit sharing ratio.

 When a new partner is admitted.

 When an existing partner retires.

 When an old partner dies.

 When a partnership firm is sold.

 When two/ more partnership firms are amalgamated.

// 102 //
75. The existing partners in a continuing partnership firm may feel the necessity of more capital
or special skill or both. When the old partners are unable to provide extra capital and/ or
special skill to the partnership firm, they with mutual consent, admit one/more partners.
Thus a new partner is admitted.

76. The accumulated profit in the business like reserve fund, profit and loss account credit
balance is transferred/ credited to the capital accounts of old partners in their old profit
sharing ratio. If the firm has fixed capital system, accumulated profit is credited to current
account of old partners in their old profit sharing ratio. The accumulated profit will not appear
in the new balance sheet.

When the partners decide not to close the accumulated profit account and those will be
shown in the accumulated profit account and those will be shown in the new Balance Sheet
as entry is passed.

Gaining Partner's capital Account …………Dr (with his shares)

To sacrificing Partner's Capital Account

77. The accumulated losses may be in the form of preliminary expenses, debit balance of
profit and loss account at the time of admission. The new partners should not be made
liable for the previous losses. It is necessary to distribute among the old partners in old
profit sharing ratio. The various accumulated losses are to be debited to old partner's
capital account/ current account in the old profit sharing ratio. These losses will not appear
in the new balance sheet.

If the partners decide not to close the accumulated losses account and those will appear in
the new Balance Sheet, an entry is to be passed:

Sacrificing Partner's Capital Account …………….Dr (with his share)

To Gaining Partner's Capital Account

78. The six contents are:

 Name of the firm

 Name and address of the partners
 The nature of business to be carried on
 The place of business
 The duration of Partnership
 The profit sharing ratio
 The capital to be invested by each partner

// 103 //
79. In the absence of partnership deed, the profit and loss of the business will be divided
equally among partners. Interest is not allowed on capital. Interest is not charged on
drawings. The partners are not entitled to any salary, commission etc. from the firm's profit.
However, interest on loan of partners is allowed @ 6 % p.a.

80. The distinctions are:

Fixed Capital system
(i) Normally the balance in the capital accounts remains unchanged unless further capital
is invested.
(ii) Two accounts, i.e. Capital account and current account are opened.
(iii) The entries for interest on capital, interest on drawings, salary, commission are passed
through current account.
Fluctuating Capital system
(i) The balance in the capital accounts change frequently.
(ii) Only one account is opened, i.e. capital account.
(iii) The entries for interest on capital, interest on drawings, salary, commission are passed
through capital account.

81. Profit and Loss account is prepared to find out the net profit or loss of the business. But
profit and loss appropriation account is prepared to appropriate or distribute the net profit
of the firm by considering the notional charges/ incomes like interest on capital interest on
drawings, salary, commission etc. Profit and Loss account is the first step of ascertaining
profit/ loss of the firm. But profit and loss appropriation is the next step for distribution of
profit/ loss of the firm. Profit and Loss Appropriation Account is an extension of Profit and
Loss Account.

82. Goodwill is an intangible asset.

 No value is given to a loss making firm.
 A price may realised for goodwill if the business is sold as a going concern.
 It is helpful in earning higher profit.
 It has an attractive force to bring customers.
 It adds extra value to the intrinsic worth of the business.

83. Commission may be allowed to partners at the partnership firm as a percentage on net
profits earned by the firm. It may be calculated as a percentage of net profit before charging
such commission or after charging such commission.

// 104 //
 Commission on Net Profit before charging commission
Commission = Net Profit before commission × Rate of commission
100
Commission on Net Profit after charging commission
Commission = Net Profit before commission × Rate of commission
100 + Rate of commission
84. Current accounts are maintained to record transactions other than introduction of capital
and withdrawal of capital such as interest on capital, interest on drawings, salary or
commission payable to partners, share of profit and losses etc. Balance of current account
fluctuates with every transaction with the partner.
Current account of each partner is debited with:
Drawings made by him, interest on drawings, share of loss
Current account of each partner is credited with:
Interest on capital, salary or commission, share of profit.
85. (a) Revaluation account is prepared to record effect of revaluation of assets and liabilities
when these appear at their revised figures. Memorandum revaluation account is
prepared to record the effect of revaluation of assets and liabilities which appear at
their old figures.
(b) Revaluation account is not divided into two parts. Memorandum revaluation account
is divided into two parts. First part to record the change in the value of assets and
liabilities and the second part to neutralize the changes recorded in the first part.
(c) The balance in revaluation account is transferred to the old partner's capital account
in old profit sharing ratio. The balance in first part is transferred to old partner's in old
profit sharing ratio. The balance (profit/ loss) in the second part is transferred to the
capital account of all partners in new profit sharing ratio.
86. At the time of change in profit sharing ratio, one or more existing partner's surrenders a
portion of their old share in favour of one or more partners. The partner(s) surrendering are
sacrificing partner(s). The partner(s) who gain in profit sharing ratio is known as gaining
partner(s).
Sacrificing ratio = Old profit sharing ratio - New profit sharing ratio
Gaining ratio = New profit sharing ratio - Old profit sharing ratio
The sacrificing ratio determines the compensation to be paid by gaining partners.

Objective of calculating gaining ratio is same as sacrificing ratio.

// 105 //
87. The various situation leading to reconstitution of partnership takes place

(i) Change in profit-sharing ratio.

(ii) Admission of a new partner.

(iii) Retirement of a partner.

(iv) Death of a partner.

(v) Insolvency of a partner

(vi) Amalgamation of two partnership firms.

88. Specimen of Revaluation Account

Dr Cr

Particulars ( ) Particulars ( )
To Assets Account Individually By Assets A/c (Individually)
(Decrease in value on revaluation) (Increase in value)
To liabilities (individually) By Liabilities A/c (Individually)
(Increase in reassessment) (Decrease in reassessment)
To Partner’s Capital Accounts (Individually) By Partner’s capital Account (Individually)
(Profit on revaluation) (Loss on revaluation)

89. If the date of drawing by a partner is not given and total amount of drawing during
the period is given, the interest on drawing is calculated at the agreed rate for a period of
six months. The assumption is that drawings is made by the partner's uniformly throughout
the year.

Interest on drawing

10 6
X  2,00,000 x x  10,000
100 12

10 6
Y  1,00,000 x x  5,000
100 12

90. As per Partnership Act, 1932, in absence of any agreement to the effect of interest on
loan, interest @ 6 % p.a. is payable to the partner.

6 9
Interest payable on loan to X  2,00,000 x x  9,000
100 12

// 106 //
 UNIT-IV
Accounting for Companies
91. The ownership shares are called the equity share. The equity shares have voting rights
and they participate in the management of the company. They get dividend on their
investment but it is not guaranteed. The rate of dividend is not fixed. The equity shares
have not any preferential right as to dividend and return of capital.
92. Preference shares are those shares which carry preferential right with regard to repayment
of capital and payment of dividend in the event of liquidation of the company. Preference
shareholders are paid dividend at afixed rate before payment of dividend to equity
shareholders.
93. Stock is the aggregate of fully paid shares. It is considered as a set of shares put together
in a bundle. Stocks can be split into fractions of any amount without any regard to the
original face value of the share. The value of stocks depends upon the number of fully paid
up shares being consolidated. A company cannot make an original issue of stock. Articles
of Association gives permission for conversion of shares to stock.
94. The differences are:
Shares
(i) Shares may be partly or fully paid.
(ii) A share has a face/ nominal value.
(iii) A share is transferable as a whole.
(iv) A share has a distinct number.
(v) Share can be directly issued to public.
Stocks
(i) A stock is always fully paid.
(ii) A stock has no nominal/ face value.
(iii) Stock can be transferred in fraction.
(iv) Stock does not have a distinct number.
(v) Stocks cannot be directly issued to public.
95. The securities premium may be utilized for the following purposes only:
 In writing off preliminary expenses of the company, or
 In writing off the expenses, commission, discount on issue of shares or debentures
of the company, or
 For issuing fully paid bonus shares to existing shareholders of the company, or
// 107 //
  For providing premium payable on redemption of preference shares or debentures
of the company, or
 For buy back of company's own shares and other securities as per section 68 of
Companies Act 2013.
96. Under Sec. 53 of the Companies Act 2013, companies are prohibited to issue shares at
a discount. The only share could be issued at discount are 'Sweat Equity Shares' as per
Section 54 of the Companies Act 2013. Issue of any other shares at a discount other than
Sweat Equity Share is void. When a company violates the provisions of the Act, it shall be
punishable with fine not less than one lakh rupees. The fine may be extended to 5 lakh
and every officer in default will get imprisonment for a term extending upto six months or
fine of 1 to 5 lakh or both.
97. The Act provides different methods for issuing Sweat Equity Shares such as:
 At a discount
 For consideration other than cash
 For providing technical know-how
 For making available the rights to intellectual property
98. When shares are issued at a premium and it is not received, Securities Premium Reserve
Account shall be debited along with Share Capital Account for amount called up. The Calls
in Arrears Account and Shares Forfeited Account shall be credited. If the premium has
already been received, the entry shall be Share Capital Account debited for the called up
amount and Calls in Arrears Account and Shares Forfeited Account shall be credited.
99. The differences are:
 Preference shares are entitled to dividend at a fixed rate while dividend rate on
equity shares is not fixed.
 Preference shares having preferential rights for refund of capital and payment
dividend, whereas as equity shares have no such facility for refund of capital and
payment of dividend.
 Preference shares can be redeemed during the life of the company but equity shares
cannot be redeemed.
100. Directors of a company are empowered to re-issue the forfeited shares, if authorised by
the Articles of Association. Such forfeited shares can be reissued on such term as the
Director think fit. The Directors are at liberty to reissue the forfeited shares at par or at a
premium or at discount. But if the forfeited shares are issued at discount, the amount of
discount allowed cannot exceed the amount previously received on these forfeited shares.

// 108 //
101. The minimum number of shareholder in a private limited company is two whereas in public
limited company seven.
The maximum number of shareholders of a private limited company is 200. But in public
limited company there is no such limit as regards to number of shareholders.
Private limited company cannot issue prospectus to the public inviting application for
subscription of shares. Public limited company can invite people to subscribe for shares.
102. If a shareholder fails to pay the amounts due on allotment or calls within a specified period,
the amount not so paid by the shareholders, is called calls-in-arrear.
If shareholders pays in excess of the amount called up, the excess amount so received is
calls-in-advance.
The amount of calls-in-arrear shows debit balance. It is shown in the Equity and liabilities
side of the Balance Sheet by way of deduction from the called up capital.
The amount of calls-in-advance shows credit balance. It is the debt of the company till call is
made. It is shown in Equity and Liabilities side of the company under the head current liabilities.
Interest on calls in arrear can be charged at a maximum rate of 10% p.a. Maximum rate of
interest payable on calls-in- advance is 12%.
103. (i) The amount to be called up either on application or allotment or any call shall not
exceed 25% of total issue price.
(ii) Total amount due on shares be fully called up within a period of 12 months from the
date of allotment.
(iii) There must be interval of at least one month between two calls.
(iv) At least 14 days' notice must be given to the shareholder for paying the amount of call.
(v) Call must be made on uniform basis on all shares within same class of share.
104. It has been a common practice to open only one account for application and allotment
instead of opening two accounts. In such a case, a joint account named 'Share Application
and Allotment Account' is opened. All entries relating to application and allotment are made
in this account.
105. In a situation of oversubscription, some applications are allotted in full and excess
applications are rejected. Application money for rejected applications is to be refunded.
For example, a company invited 1,00,000 applications. But public subscribed for 1,20,000
shares. Application for excess shares i.e. 20,000 shares are rejected. The application
money for these excess shares must be refunded within 15 days of the expiry of 60 days
from date of receipt of application money. If company fails to refund the application money
within the aforesaid period, it is liable to repay the money with interest @12% per annum
from the expiry of 60 days.

// 109 //
 GROUP - C
LONG QUESTIONS
UNIT - I
(A) Financial Statements of Sole Trade Organisations
1. Explain the accounting treatment of outstanding expenses, prepaid expenses, accrued
income and unearned income in final accounts with imaginary figures.

2. What is meant by provision for doubtful debts? How are the relevant accounts prepared
and how journal entries are passed in final accounts?

3. Define Trial Balance and Balance Sheet. Distinguish between these two.

4. Discuss the classifications of assets and liabilities.

5. Give the accounting treatment of goods destroyed by fire under different situations with
suitable examples.

6. From the following Trial Balance prepare Trading account and Profit and Loss Account
and Balance Sheet as on 31.03.2021.

Closing Stock as on 31.03.2021 was 22,400.

Debit Balance ( ) Credit Balance ( )

Plant and machinery 27,000 Capital 60,000
Sundry Debtors 21,600 Bills Payable 1,400
Drawings 2,700 Sundry Creditors 2,800
Purchases 59,000 Sales 73,500
Wages 14,500
Sundry Expenses 600
Rent and Taxes 1,350
Carriage Inwards 450
Bank 4,500
Opening Stock 6,000
Total 1,37,700 1,37,700

// 110 //
7. From the following Balance of M/s. N & Co. on 31.03.2021, you are required to prepare
Trading, Profit and Loss Account and Balance Sheet as on the date:

Debit Balance ( ) Credit Balance ( )

Opening Stock Sales
12,000 80,000
Purchases Return Outward
38,000 600
Return Inward Miscellaneous Income
900 6,000
Productive Wages Rent and Tenants
6,000 2,000
Dock and Cleaning Capital
4,000 40,000
Charges Sundry Creditors
600 8,000
Donation and Charity
6,000
Delivery Van Express
500
Lighting
800
Goods and Service Tax
600
Bad Debts
3,200
Royalty
2,000
Drawings
6,000
Sundry Debtors
3,000
Cash
6,000
Investment
4,000
Patents
43,000
Machinery
Total 1,36,600 1,36,600

Closing Stock 15,000.

8. From the following Trial Balance of Ajay as on 31.03.2021, prepare the final accounts:

Particulars Debit Credit

_
Cash in Hand 13,800
_
Purchases 2,62,500
2,000
Purchases Return _
_
General Expenses 10,000
_
Insurance 3,600
3,50,000
Capital _
48,000
Debtors & Creditors 60,000
5,00,500
Sales _
_
Sales Return 4,500
_
Wages 45,200
_
Fuel and Power 5,700
_
Carriage on Sales 5,100
_
Carriage Inwards 2,600
_
Opening Stock 40,000
_
Building and Land 3,00,000
_
Machinery 1,00,000
_
Salaries 12,500
_
Trademark 35,000
Total 9,00,500 9,00,500

// 111 //
 Adjustments :

(a) Closing stock 85,000

(b) Salaries Outstanding 2,500

(c) Insurance Prepaid 1,200

(d) Depreciation on Building & Land by 5% and Machinery by 10%

9. Prepare Final Accounts from the following Trial Balance of M/s. Tyagi& Sons for the year
ending 31.03.2021:

Debit Balance ( ) Credit Balance ( )

Opening Stock 30,000 Capital 1,50,000
Purchases 2,70,000 Sales 4,00,000
Sales Return 7,000 Purchases Return 6,500
Carriage on Purchases 2,000 Sundry Creditors 40,000
Plant and Machinery 1,00,000 Bills Payable 20,000
Furniture & Fixtures 60,000 Commission 10,000
Freehold Property 50,000
Cash in Hand 6,000
Carriage Outwards 1,000
Wages 33,000
Salaries 20,000
Lighting-factory 2,000
Sundry Debtors 30,000
Travelling Expenses 2,500
Rent and Taxes 5,000
Drawings 6,000
Insurance 2,000
Total 6,26,500 6,26,500

Adjustments:

(a) Closing stock 35,000

(b) Wages unpaid 2,000

(c) Commission Received in Advance 3,000

(d) Depreciation on Plant and Machinery 5% and on Furniture and Fixtures 10%.

10. The following balances have been extracted from the Trial Balance of Bijoy. You are required
to prepare Trading, profit and Loss Account for the year ending 31.03.2021 and Balance
Sheet on the date from the given data:

// 112 //
 Debit Balance (₹) Credit Balance (₹)
Drawings 20,000 Sales
2,76,000
Bad Debts 1,000 Return Outward
2,000
Sundry Debtors 80,000 Capital
2,50,000
Printing & Stationery 2,000 Bank Overdraft
12,000
Freight Inwards 4,000 Provision for Bad debts
4,000
Trade Expenses 2,400 Sundry Creditors
20,000
Return Inward 7,000 Bills Payable
5,400
Opening Stock 25,000
Purchases 1,80,000
Rent, Rates & Taxes 5,000
Furniture & Fixtures 20,000
Plant and Machinery 1,00,000
Bills Receivable 14,000
Wages 10,000
Cash at Bank 6,000
Discount 2,000
Investment 40,000
Land and Buildings 51,000
Total 5,69,400 5,69,400

Adjustments:
(a) Closing stock 45,000
(b) Provision for Bad debts is to be made @ 5% on debtors
(c) Depreciation on Furniture and Fixtures @ 5% p.a., Plant and Machinery @ 6% p.a.
and Land and Buildings @ 10% p.a.
11. From the Trail Balance and information given below, prepare Trading A/c and Profit and
Loss A/c for the year ended 31.03.2021 and Balance Sheet as on the that date:

Particulars (₹) Particulars (₹)

Opening Stock 66,000 Sundry Creditors 31,950
Sundry Debtors 96,000 Sales 4,02,000
Cash 4,740 Bills Payable 22,500
Plant and Machinery 52,500 Capital (1.4.2020) 2,38,500
Trade Expenses 3,225
Salaries 6,675
Carriage Outwards 1,200
Rent 2,700
Purchases 3,55,110
Discount 3,300
Business Premises 1,03,500
6,94,950 6,94,950

The Closing Stock was 37,350, Rent Outstanding 225, Trade Expenses Outstanding
were 450, 1,200 to be written of as bad debts, out of the above 5% to be provided for
doubtful debts. Depreciate plant and machinery by 10% and business premises by 2%.

// 113 //
12. From the following Trial Balance of Mr. Amit , prepare Trading Account, Profit and Loss
Account for the year ending 31.03.2021 and the Balance Sheet as on that date:
Debit Balances Amount (₹) Credit Balance Amount (₹)

Opening Stock 8,000 Sales 37,000

Purchases 20,000 Returns Outward 1,455
Return & Inwards 1,350 Capital 30,000
Wages 1,000 Sundry Creditors 20,000
Carriages 500
Salaries 1,700
Printing and Stationery 800
Drawings 3,000
Machinery 32,000
Cash 105
Sundry Debtors 20,000
88,455 88,455

Adjustments:
(a) Wages Outstanding 300
(b) Goods destroyed by fire 2,000; Insurance claim was not admitted for the loss
(c) Depreciation machinery by 5% p.a.
(d) Closing Stock was 18,000.
13. From the following Balance of Shivam, prepare final accounts for the year ending
31.12.2021.
Debit Balances Amount (₹) Credit Balances Amount (₹)

Sundry Debtors 10,000 Capital 75,000

Furniture 8,000 Sales 1,27,500
Plant and Machinery 52,000 Sundry Creditors 12,000
Bad Debts 700 Interest 1,000
Bills Receivable 4,000 Bills Payable 4,000
Drawings 17,000 Rent 3,200
Discount 1,200 Purchases Return 1,000
Purchases 90,800
Opening Stock 23,500
Wages & Salaries 6,000
Bank 7,500
Trade Expenses 1,000
Depreciation 2,000
2,23,700 2,23,700

Additional Information:
(i) Closing Stock 35,000
(ii) Wages due 2,000
(iii) Create a reserve for discount @ 5% on creditors.

// 114 //
14. From the following extract of the Trial Balance as 31st March, 2021, pass necessary journal
entries and show the treatment of bad debts and provision for bad and doubtful debts in
the relevant accounts and in the financial statements.
Trial Balance
Ledger Accounts Debit(₹) Credit(₹)
Sundry Debtors 5,20,000 _
Provision for Bad and Doubtful Debts _ 30,000
Bad Debts 5,000 _

Adjustments:
(a) Further Bad debts were 20,000
(b) Provision for Bad and Doubtful Debts is to be maintained at 10% on Sundry Debtors.

15. Following are the items shown in the Trial Balance of Hira Kohli on 31stMarch 2021.
Particulars Debit(₹) Credit(₹)
Sundry Debtors 21,000 _
Bad Debts 500 _
Adjustments:
(a) Write off 1,000 as further bad debts.
(b) Create a provision for bad and doubtful debts at 5% on sundry debtors as on
31.03.2021.

16. M/s Nexto& Co. maintains a Reserve for discount @ 4% on creditors which on 1st April
2019 was 4,000. Their Balances on 31.03.2020 and 31.03.2021 were given as below:
31.03.2020 31.03.2021
(₹) (₹)
Discount Received 3,000 300
Sundry Creditors 50,000 40,000

Show the necessary ledger accounts and show how the items would appear in the final
account of 2019-20 and 2020-21.

17. From the extract of a Trial Balance as on 31.03.2021 as given below, you are required to
pass the necessary journal entries and show the treatment in relevant ledger account and
final accounts:

Debit Balance Credit Balance

(₹) (₹)
Sundry Debtors 1,06,500 _
Bad Debts 2,000 _
Discount 1,000 _
Provision for Doubtful Debts A/c _ 1,500
Adjustments:
(a) Create a provision for Doubtful Debts @ 5% on sundry debtors.
(b) A further bad debts of 6,500 to be written off.
(c) Create a provision for Discount on Debtors @ 2% on debtors.

// 115 //
18. What is a Balance Sheet? Explain the relevant items shown in a Balance Sheet.
19. Define Financial Statements. Distinguish between Trading Account, Profit and Loss Account
in one side and Balance Sheet on the other side.
20. What is a closing entry? Give the feasible number of closing entries in Trading and Profit
and Loss Account separately.
21. Give the proforma of a Trading Account, Profit and Loss Account and Balance Sheet.
22. Show the treatment of goods used for personal use of proprietor, goods distributed as
free sample and also for charity in Final Accounts with suitable examples.
23. Is it necessary to pass two entries for every adjustment? Explain with suitable adjustment.
24. How will you calculate the provision for discount on debtors when further bad debts and
provision for doubtful debts are also given as adjustments? Show with the help of imaginary
figures.
25. What is Balance Sheet? Discuss its features. What is the purpose of preparing Balance
Sheet?
26. On 01.04.2019, a provision for Doubtful Debts showed a credit balance of 9,500. During
the year bad debts amounted to 6,000. The debtors on 31.03.2020 amounted to 2,00,000
and a provision of 5% for doubtful debts was to be maintained from 1.04.2020 - 31.03.2021,
bad debts amounted to 2,000. Debtors on 31.03.2021 amounted to 1,40,000. On this
amount a provision of 5 % for bad and doubtful debts was to be maintained.
Pass Journal Entries; Prepare Provision for Doubtful Debt Account. Also show the items
in Profit and Loss Account and Balance Sheet.
27. Calculate Gross Profit from the following information extracted from Trial Balance of Mr. X
for the year ending 31.03.2021.
(₹) (₹)
Opening Stock 25,000 Return inwards 3,000
Purchases 1,45,000 Direct Expenses 12,000
Purchase Return 5,000 Closing Stock 30,000
Sales 1,80,000

28. Ravi provides the following information:

Particulars Debit (₹) Credit (₹)
Machinery 5,00,000 _
Building 10,00,000 _
Capital Account _ 5,00,000
Drawing account 40,000 _

Provide depreciation @ 10% p.a. on fixed assets. Charge 1,500 interest on drawings.
You are required to show fixed assets, capital account and drawing account in Final accounts
of Ravi.

// 116 //
29. From the Trial Balance of Mr.Susmit, prepare Trading, Profit and Loss Account for the year
ending 31st March 2021 and the Balance Sheet as on the date

Debit Balances Amount (₹) Credit Balance Amount (₹)

Opening Stock 7,000 Sales 37,000

Purchases 21,000 Returns Outward 1,455
Return Inwards 1,350 Capital 30,000
Wages 750 Sundry Creditors 20,000
Carriage 750
Salaries 1,500
Printing and Stationery 1,000
Drawings 3,000
Machinery 32,000
Cash 105
Sundry Debtors 20,000
88,455 88,455

Adjustments:
(a) Wages Outstanding 300
(b) Goods destroyed by fire 2,000; No insurance claim was admitted.
(c) Depreciation machinery by 5% p.a.
(d) Closing Stock 20,000

30. From the Trial Balance of Pandit& Sons, prepare Final Accounts for the year ending
31.03.2021 and Balance Sheet as on that date.
Trial Balance as on 31.03.2021

Debit Balances Amount (₹) Credit Balance Amount (₹)

Opening Stock 20,000 Capital 1,60,000
Purchases 2,60,000 Return Outwards 4,000
Plant and Machinery 1,30,000 Sundry Creditors 20,900
Sundry Debtors 50,000 Sales 3,41,000
Furniture 25,000 Rent Received 4,000
Customs Duty 4,500 Loan from Bank @ 10% 29,000
Life Insurance Premium 3,000
Carriage Inward 2,000
Carriage Outward 1,500
Trade Expenses 2,200
Return Inward 3,500
Discount Allowed 2,000
Office Expenses 4,000
Bank Interest 500
Cash in Hand 5,700
Salaries 45,000
5,58,900 5,58,900

// 117 //
 Adjustments:
(a) Closing Stock was 55,000
(b) Stock of 5,000 was burnt by fire. It was fully insured and insurance company admitted
the claim in full.
(c) Goods worth 3,000 were distributed as free sample and goods worth 1,000 were
taken by proprietor for personal use.
(d) Maintain a reserve of 2% on Sundry Creditors.
(e) Provide a depreciation of 10% on Plant and Machinery.

31. Following is the Trial Balance of Naresh Brothers. Prepare Trading and Profit and Loss
Account for the year ending 31.03.2021 and Balance Sheet as at date:

Debit Balance (₹) Credit Balance (₹)

Drawings 20,000 Provision for Bad debts 8,000
Carriage Inwards 7,000 Sundry Creditors 70,000
Wages 8,000 Purchase Returns 4,500
Power 3,200 Sales 3,95,500
Advertisement 25,000 Capital 2,00,000
Plant and Machinery 70,000
Opening Stock 20,000
Purchases 3,88,000
Return Inward 3,500
Cash-in- Hand 16,000
Cash at Bank 16,000
Salaries 14,000
Rent and Insurance 18,500
Prepaid Insurance 1,200
Goods and Service Tax 6,700
Bad Debts 900
Sundry Debtors 60,000

Total 6,78,000 6,78,000

Adjustments:

(a) Closing Stock was 1,00,700.

(b) Depreciate Machinery by 10%.

(c) Write off advertisement by 20%.

(d) Further bad debts 2,000 and make a provision for bad debts by 5%.

(e) Charge 10% manager's commission on net profit after charging such commission.

// 118 //
 UNIT - II
Accounting for Depreciation
32. What is depreciation? Discuss the causes and objectives for providing depreciation.
33. Define depreciation. Discuss its characteristics.
34. Explain the straight line method of depreciation.
35. Explain written down value method of depreciation. Also explain its advantages and
disadvantages.
36. Give the journal entries for charging depreciation under simple method with imaginary
example. Show the treatment in balance sheet also.
37. Write up journal entries for depreciation under provision for depreciation method with
imaginary example. Show the treatment in the balance sheet also.
38. Ajay purchased a machinery on 01.01.2018for 80,000. Depreciation is provided under
straight line method @ 10% p.a. Accounts are closed on 31st March every year. Pass
journal entries and prepare necessary ledger accounts till 31st Mach 2021.
39. A manufacturer acquires a machine on 01.04.2018 for 80,000. He spent 2,000 on
transportation and 18,000 on installation. The manufacturer charges depreciation @ 10%
p.a on original cost every year. Show the Machinery Account and Depreciation Account for
3 years. The books are closed on 31st March every year.
40. Mr. Ram purchased a machine for 3,00,000 on 1st January 2018. It was decided that
depreciation to be charged at 10 % p.a. on reducing balance method. Show the Machinery
Account and Depreciation Account in the books of Ram Prasad from 1st January 2018 to
31st March 2021 assuming that accounts are closed on 31st March every year.
41. X purchased a machinery on 1st April for 12,00,000. On 1st April 2019, a part of the
machine purchased on 01.04.2018 for 2,00,000 was sold for 1,70,000. Another machine
was purchased on 1st April 2020 for 1,00,000. X has adopted method of proving 10%
depreciation p.a. on the diminishing balance of the machinery. Show the necessary ledger
accounts from 2018-19 to 2020-2021 assuming that:
(a) Provision for depreciation account is not maintained.
(b) Provision for depreciation account is maintained.
42. What do you mean by recording depreciation when provision for depreciation account is
maintained? Distinguish between depreciation and provision for depreciation account.
43. Mr. Janmejaya purchased a machinery for 1,00,000 on 1st April 2017. He purchased
another machine on 31st December 2019 for 1,20,000. Depreciation is provided at 10%
p.a. under straight line method. Write up machinery account and depreciation account
from 2017-18 to 2020-21 assuming that accounts are closed on 31st March every year.

// 119 //
44. On 1st Jan 2018 'X' purchased an asset for 1,28,000. On 31st March 2021, it was sold for
80,400. Depreciation is provided @10% p.a. on original cost each year. Prepare asset
account till 31.03.2021, assuming that the books are closed on 31st March every year.
45. Ramesh bought a machinery on 1st April 2018 costing 5,80,000. It was installed at a
cost of 20,000. It was decided to charge depreciation @15% p.a. on diminishing balance.
Show machinery account and depreciation account for the year 2018-19 to 2020-21
assuming that accounts are closed on 31st March every year.
46. A plant was purchased for 10,00,000 on 1st April 2016. It was depreciated @5% p.a. on
reducing balance method. Due to change in technology the plant became obsolete on
31st March 2021 and was scrapped. The scrap realized 2,00,000. Show the plant account
from 2016-17 to 2020-21 assuming that accounts are closed on 31st March every year.
47. Mr. Jamuna Lal purchased a machine for 1,50,000 on 1st January 2018. He spent 10,000
on installation of the machine. He purchased another machine on 1st April 2019 at a cost
of 1,20,000. Again another machine was purchased on 1st April 2020 for 1,00,000.
Show machinery account and depreciation account from 1st January 2018 to 31st March
2021 assuming that accounts are closed on 31st March every year. Depreciation is
calculated @ 10% p.a. on original cost of the machine.

Accounting from Incomplete Records

48. What is single entry system? What are its limitations?
49. Discuss the characteristics and limitations of single entry system.
50. What do you mean by single entry system? Differentiate between single entry system and
double entry system of book keeping.

51. Differentiate between Balance Sheet and Statement of Affairs.

52. Discuss in brief with suitable example the ascertainment of profit/ loss under Statement of
Affairs method.

53. Ascertain the opening and closing capital from the following balances:
Particulars 01.04.2020 31.03.2021
Cash 12,200 15,600
Bank Overdraft 4,000 6,300
Bills Receivable 8,200 12,300
Debtors 7,500 6,300
Creditors 16,400 12,500
Stock-in-Trade 8,400 10,200
Furniture 20,000 20,000
Machinery 40,000 40,000
// 120 //
54. Following incomplete information is available from the record maintained by M/s Y & Co:

Particulars 01.04.2020 31.03.2021

Cash 12,200 14,300
Bank 18,500 21,300
Debtors 22,300 17,500
Creditors 25,200 27,000
Investment 14,000 16,000
Stock 15,600 12,700
Bank Loan 18,000 20,000
Bills Receivable 12,400 14,300

During the year M/s Y & Co. introduced further capital 10,000. His drawings were 2,000
p.m.
From the above information, prepare a statement showing the Profit or Loss made by him
for the year ending 31st March 2021.

55. A trader does not keep proper books of accounts. However, he can provide you the following
information.
Particulars 31.03.2020 31.03.2021
Cash in Hand 42,000 45,000
Bank Overdraft 33,000 37,000
Stock in Trade 68,000 77,000
Equipments 50,000 50,000
Debtors 26,800 31,400
Creditors 30,000 20,000
Furniture 40,000 40,000
The trader had introduced a further capital of 30,000. He withdraw 40,000 for his personal
use. Depreciation to be provided on equipment and furniture @ 5% p.a. Allow interest on
capital 2,000.Charge interest on drawings 500, Rent prepaid 500, Salary Outstanding
1,000.
Prepare a statement showing profit/loss for the year ending 31st March 2021.
56. Prepare the statement of affairs and ascertain the profit / loss from the following information:

Particulars 01.04.2020 31.03.2021

Stock 22,200 25,700
Debtors 18,300 20,200
Creditors 17,400 12,600
Cash in Hand 22,500 28,600
Bank Balance 8,200 7,300
Bills Receivable 14,200 16,400
Furniture 25,000 25,000
Prepaid Expenses _ 500

// 121 //
57. Jayant keeps his accounts records incomplete. His position on 31st March 2020 was as
follows:

Cash in Hand 15,200. Cash at Bank 6,300. Sundry Debtors 7,600, Sundry Creditors
9,600; Bills Receivable 5,400 ; Furniture and Fixtures 18,000.

He introduced 15,000 as further capital during the year. His drawings were 1000 p.m.
His position on 31st March 2021 was as follows:

Cash in Hand 16,400. Cash at Bank 7,200. Sundry Debtors 8,200, Sundry Creditors
7,200; Bills Receivable 5,400; Furniture and Fixtures 18,000.

Prepare Statement of Affairs and Statement of Profit / Loss for the year ending 31st March
2021.

58. Mr. Himansu who maintains his accounts under single entry system , supplies you the
following information.

Particulars 31.03.2020 31.03.2021

(₹) (₹)
Cash in Hand 30,000 35,000
Cash at Bank 3,90,000 4,77,000
Sundry Debtors 2,80,000 2,64,000
Stock 4,50,000 5,52,000
Furniture 3,00,000 3,00,000
Sundry Creditors 3,80,000 2,86,000
Loan from Mrs. Himansu 3,00,000 3,00,000

He withdrew @ 25,000 per month from the business to meet his private expenses. He
had sold a private investment for 3,00,000 and invested the amount in the business.

Adjustments:

Interest on Mrs. Himansu @12% p.a. is not paid.

Depreciate furniture by 10% p.a.

Prepare statement of affairs showing the Profit and Loss made by him for the year ending
31.03.2021.

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59. Narendra, a trader does not keep his books of accounts under double entry system. He
furnishes the followinginformations:

Particulars 31.03.2020(₹) 31.03.2021(₹)

Cash at Bank 45,000 60,000
Cash in Hand 3,000 10,000
Stock-in-Trade 4,00,000 4,50,000
Debtors 1,20,000 2,00,000
Office Equipment 50,000 50,000
Furniture 40,000 40,000
Sundry Creditors 3,00,000 2,00,000

During the year he introduced further capital of 60,000. He withdrew 40,000 for private
use. Write off depreciation on furniture at 10% and on office equipment at 5%.

Prepare a statement showing the profit or loss made by him for the year ended 31st March
2021.

60. Mr. Ratikanta keeps his books under single entry system. From the following informations,
prepare a statement showing profit and loss for the year ended 31st March 2021.

Particulars 31.03.2020 31.03.2021

(₹) (₹)
Cash 30,000 35,000
Bank 4,10,000 1,60,000
Debtors 3,14,000 3,20,000
Bills Receivable 70,000 80,000
Sundry Creditors 1,80,000 1,10,000
Investments 2,20,000 -
Furniture (30.09.2020) _ 1,80,000
Plant and Machinery 4,00,000 4,00,000
Bills Payable 1,75,000 -
Stock 4,72,000 5,24,000

During the year he withdrew 2,00,000 for personal use. He introduced further capital of
2,10,000.
Adjustments:
(i) Debtor include 10,000 from a customer who became insolvent. The amount is
irrecoverable.
(ii) Depreciate furniture by 10% p.a.
(iii) Depreciate plant and machinery by 5% p.a.

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 UNIT - III
Accounting for Partnership
61. What is 'Partnership Deed'? Discuss its important clauses.
62. Define Partnership. Discuss its essential characteristics.
63. Discuss and distinguish between fixed and fluctuating capital.
64. X and Y started a partnership on 01.04.2020 by contributing capital of 70,000 and 60,000
respectively. The agreement between the partners was as follows:
(i) X and Y to get monthly salary of 1,500 and 2,000 respectively and sharing profits
in the ratio of 3:2.
(ii) Interest on capital to be allowed at 10% p.a.
(iii) Interest on drawings to be charged at 8% p.a.
(iv) X is entitled to a commission of 5,000.
(v) 15% of the profits to be transferred to General Reserve.
The profits for the year ending 31stMarch, 2021 before above mentioned adjustments
was 1,44,000. X and Y have drawn 35,000 and 30,000 respectively during the year.
You are required to prepare Profit and Loss Appropriation Account and Partner's Capital
Account.
65. A, B and C are in a partnership with respective fixed capitals of 40,000, 30,000 and
20,000. B and C are entitled to annual salaries of 2,000 and 1,500 respectively payable
before division of profits. Interest on capital is allowed at 5% p.a. but no interest is charged
on drawings. On the profit earned during the year, the first 12,000 is divided between A,
B and C in 5:3:2 ratio and profit in excess of this is to be divided equally. The profit for the
year ended 31stMarch 2021 was 20,100 after debiting partner's salaries but before
changing interest on capital. The drawings during the year were, A- 8,000, B - 7,500 and
C- 4,000. The balance on partner's current account on 1st April 2020 :
A - 3,000 (Cr.), B- 500 (Cr.) and
C- 1,000 (Dr.)
Prepare Profit and Loss Appropriation Account and Partner's Capital Account for the year
2020-21.
66. Define goodwill. What are the nature of goodwill ?
67. What do you mean by goodwill? Describe the factors affecting goodwill.
68. From the following information, calculate the value of goodwill on the basis of 3 years
purchase of the super profits:

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 (i) Average capital employed in the business 15,00,000.

(ii) Rate of interest expected from capital is 10%.

(iii) Net trading profit for the firm for last four years were : 2,70,800, 3,20,000; 2,70,500
and 3,05,100.

(iv) Fair remuneration to the partners for their services for the firm is 36,000 p.a.

69. The following particulars are available in respect of a firm carried on by X and Y:

(i) Profit earned 2018-19 - 50,000; 2019-20 - 60,000; 2020-21 - 55,000.

(ii) Normal rate of profit 10%.

(iii) Capital employed 3,00,000.

(iv) The profit included non-recurring profits on an average basis of 3,000 p.a.

You are required to calculate goodwill as per capitalization of super profit method.

70. From the following information, calculate value of goodwill of the firm by applying
capitalisation method: Total capital of the firm 16,00,000, Reasonable rate of return 10%,
Profit for the year 2,00,000.

71. What is Revaluation Account? How does it differ from a Memorandum Revaluation
Account?

72. Pass necessary journal entries relating to revaluation of assets and liabilities on the
reconstitution of a firm.

73. A, B and C are partners sharing profit and losses in the ratio of 2:1:1. They decided that
with effect from 1st April 2021, A shall receive 1/4th share in the profits.

On 31st March 2021, their Balance Sheet stood as follows:

Balance Sheet of B and C as on 31.03.2021

Liabilities (₹) Assets (₹)

Creditors 20,000 Bank 10,000
Capital A/c’s: Debtors 35,000
A 50,000 Stock 15,000
B 25,000 Land 60,000
C 25,000 1,00,000
1,20,000 1,20,000

On this date land was valued at 75,000. Stock at 30,000 and a provision of 2,000 on
debtors is to be created. Pass necessary journal entries in the books of the firm regarding
the revaluation of assets and prepare Revaluation Account.

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74. X and Y are partners in a firm sharing profits and losses in the ratio of 2:1. Their Balance
Sheet as on 31st March, 2021 stood as follows:
Balance Sheet as on 31.03.2021

Liabilities (₹) Assets (₹)

Capital Accounts Cash in Hand 1,000
X 30,000 Plants and Machinery 16,000
Y 15,000 Cash at Bank
Bills Payable 3,000 Stock 7,250
Creditors 12,000 Debtors 11,750
24,000
60,000 60,000

The partners agree to admit Z on the following conditions:

(i) Stock to be valued at 15,000.

(ii) Plant and Machinery to be reduced by 10%.

(iii) Z was to introduce 13,350 as capital for 1/5th share in the future profits of the firm.
Show necessary ledger accounts in the books of the firm and draw up the opening
Balance Sheet of X, Y and Z.

75. A and B carrying on business in partnership and sharing profits and losses in the ratio of
3:2 respectively, admitted C on 31st March 2021 when their Balance Sheet stood as follows:

Liabilities (₹) Assets (₹)

Sundry Creditors 15,000 Cash 1,000
General Reserves 6,000 Debtors 15,200
A’s Capital Account 18,000 Stock 18,100
B’s Capital Account 14,000 Furniture 8,700
Building 10,000

53,000 53,000

The terms of C's admission were as follows:

(i) C would get 1/4th share in the future profits.

(ii) C would bring 15,000 as his share of capital and 50,000 as his share of goodwill.

(iii) Building would be appreciated by 25% and a provision for bad debts would be
created for 200.

(iv) Capital Accounts of all partners would be in the profit sharing ratio, the necessary
adjustments being made in cash.
Show Revaluation Account, Cash Book, Partner's Capital Account and the Balance Sheet
of the new firm.

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76. P and Q were partners having equal ratio to share profits and losses. On 31stMarch 2021,
there Balance Sheet was as follows:
Balance Sheet as on 31.03.2021

Liabilities (₹) Assets (₹)

Capitals: Buildings 12,000
P 10,000 Furniture’s and Fittings 600
Q 5,000 15,000 Stock 5,400
---------- Sundry Debtors 3,400
Sundry Creditors 4,300 Cash 350
Bills Payable 2,450

21,750 21,750

On 1st April 2021, R was admitted for 1/5th share on the following terms:

(i) R brings 4,000 for his capital and 1,600 for goodwill.

(ii) Half of the goodwill will be withdrawn by P and Q in cash.

(iii) Assets are to re re-valued as follow:

Increase in the value of Building by 10%,

Decrease in the value of stock by 5% stock,

5% provision is to be made for doubtful debts,

Decrease in the value of furniture by 20%

Prepare Revaluation Account, Capital Account of partners and the Balance Sheet of the
new firm.

77. What do you mean by past adjustments? How would you deal with them,

a) before closing the accounts

b) after closing the accounts?

78. Explain with the help of examples, circumstances on which the reconstitution of partnership
firm takes place.

79. Why is it necessary to revaluate the assets and reassess the liabilities on the reconstitution
of a partnership firm? Explain briefly.

80. How general reserve and balance of 'Profit and Loss Account" as shown in the Balance
Sheet treated on change in the profit-sharing ratio of the existing partners? Explain briefly
with the help of examples.

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81. X and Y are partners in a firm. X is to get a commission of 10% of net profit before
charging any commission. Y is to get a commission of 10% of net profit after charging all
commissions. Net profit for the year ended 31st March 2021 before charging any
commission was 11,00,000.

Find the commission of X and Y, Also show the distribution of profits.

82. A, B and C are partners, sharing profits and losses in the ratio of 5:3:2, after providing for
interest at 5% per annum on their capitals, which are A 5,00,000, B 3,00,000, C 2,00,000.
Salary was allowed to B and C at 50,000 each per annum. During the year 2020-21 A
has drawn 1,00,000, B 75,000 and C 10,000 in addition to their salaries. The profit
during the year before charging interest on capital and partner's salaries amounted to
4,50,000. On 1st April 2020, the balances in the current account of partners were A
45,000 (Cr.), B 10,000 (Dr.) and C 25,000 (Cr.). Show the profit and loss appropriation
account, partner's capital account and current accounts on 31st March 2021.

83. Expected average profit of Harapriya & Co. is 6,00,000. Normal rate of return of similar
type of business firm is 10%. Calculate goodwill of the firm if average capital employed is
40,00,00. Use,

(i) Super profit method on the basis of two years purchase.

(ii) Capitalization of super profit method.

84. A and B are partners in a partnership firm. They admit C into partnership. For this purpose
goodwill is to be calculated at two year purchase of three years average normal profit of
past three years. Profit of last three years were:

2018-2019 - Profit 6,00,000 (including profit on sale of asset 1,00,000)

2019-2020 - Loss 1,50,000 ( including loss by fire 2,50,000)

2020-2021- Profit 8,00,000 ( including profit on sale of investments 50,000, Insurance

claim 1,50,000.

85. i) Profit of last 5 years ending 31st March 2021 are : 2016-17 1,70,000, 2017-18
1,90,000, 2018-19 2,20,000, 2019-20 2,50,000, 2020-21 2,70,000.

ii) Capitalisation rate 10%

iii) Net asset of the firm 18,00,000.

From the above information, calculate value of goodwill, by applying capitalisation of

Average Profit method.

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86. A and B are two partners showing profits and losses in the ratio of 3:2. On 31.03.2021 they
had 1,20,000 in general reserve and 80,000 in profit and loss account.
They decided to change the profit sharing ratio 1:1 with effect from 01.04.2021. Pass
necessary journal entry if:
(i) They decided not to show the accumulated profits in the balance sheet.
(ii) They decided to show the accumulated profits in the balance sheet.
87. A, B, C were sharing profits and losses in the ratio of 5:3:2. They decided to share future
profits and losses in the ratio of 2:3:5 with effect from 01.04.2021. They also decided to
record the effect of the following , without affecting their book values:
(i) General Reserve 1,20,000
(ii) Accumulated loss 30,000
Pass necessary adjustment entry.

UNIT - IV
Accounting for Companies
88. Define a joint stock company. Discuss the essential features of a joint stock company.
89. What is share capital? Explain the different classes of share capital. How are they shown
in the Balance Sheet?
90. Can the shares be issued at a premium? State the purpose for which securities premium
reserve can be utilised?
91. Can the shares be issued at a discount? Outline the guidelines of the Companies
Act, 2013.
92. Utkal Asbestos Limited with authorised capital of 50,00,000 in Equity shares of 100
each issued 10,000 of such shares payable as follows:
On application 30; allotment 40 (with premium) ; On first call 20 and on final call 20.
All the shares were subscribed by the public. The allotment was duly made and money
was realized in full. On first call being made, Prakash to whom 100 shares were allotted
paid the entire amount due on his holdings. Final call is yet to be made.
Give journal entries to record the above transactions and prepare an extract of Balance
Sheet.

93. XYZ Ltd. issued 6,000 Equity shares of 100 each at 120 per share payable on application
30, on allotment (including premium) 70 and on first and final call 20. All the shares
were subscribed by the public and duly allotted by the Directors. All the money due on
// 129 //
 shares were received except the allotment and call money on 500 shares. These shares
were forfeited subsequently.

Pass necessary journal entries in the books of XYZ Ltd.

94. Fortune Ltd. issued 1,00,000 equity shares of 10 each at a premium of 2 per share,
payable 5 on application, 5 (including premium) on allotment and 2 on first and final call.
Subscriptions were received for 1,20,000 shares. The company rejected the applications
for 20,000 shares and remaining applications were accepted. The allotment money was
received in full. But a holder of 3000 shares failed to pay the first and final call money. His
shares were forfeited and subsequently reissued at 9 per shares as fully paid.

Show the necessary journal entries in the books of the company.

95. XYZ Ltd. invited for 1,00,000 Equity shares at 10 each, payable as 3 on application,
5 on allotment and the balance on first and final call. Applications were received for 3,00,000
shares and the shares were allotted on prorata basis. The application money was to be
adjusted against allotment only. A shareholder who had applied for 6,000 shares, failed to
pay the call money and his shares were forfeited. Subsequently, these shares were reissued
at 8 per share as fully paid.

Journalise the above transactions.

96. X Ltd. purchase Plant & Machinery worth 10,00,000 from Naresh Machinery Ltd. X Ltd.
issued equity shares of 100 each fully paid up in full satisfaction of their claim. Pass
journal entries in the books of X Ltd. assuming that:
i) Share issued at par.
ii) Shares issued at a premium of 2.50 per share.

97. M Ltd. purchased the business from Sibsankar with the following assets and liabilities. It
issued 3,00,000 fully paid up equity shares of 10 each in full satisfaction of claim.

Particulars
Plant and Machinery 10,00,000
Land and Building 20,00,000
Stock 20,000
Sundry Debtors 80,000
Sundry Creditors 1,20,000
Bills Payable 80,000

Journalise the above transactions.

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98. X Ltd. purchased a business from Namura & Sons with the following assets and liabilities
for 30,00,000. It issued fully paid equity shares worth 27,00,000 and balance by account
payee cheque of 3,00,000.

Particulars

Plant and Machinery 3,90,000

Land and Building 21,00,000

Stock 1,50,000

Bills Receivable 1,80,000

Sundry Debtors 4,20,000

Bills Payable 90,000

Sundry Creditors 60,000

Pass necessary journal entries in the books of X Ltd.

99. A Ltd. issued 1,00,000 shares of 10 each to the public for subscription . Amount payable
2 on application, 5 on allotment, 3 on 1st call. All shares fully subscribed. Company
also received the full amount. Pass necessary journal entries in the books of the company.

100. Sunshine Ltd. offered for public subscription 1,00,000 Equity shares of 10 each and
50,000 12% preference shares of 10 each, payable as follows:

For Equity shares For Preference shares

On Application 3 4

On Allotment 5 3

On First and Final call 2 3

Public subscribed for 1,20,000 equity shares and 60,000 Preference shares. The company
rejected application for 20,000 equity shares and 10,000 Preference shares. Remaining
applications were accepted in full. All the calls were duly made and full money was duly
received.

Prepare cash book and pass necessary journal entries in the books of Sunshine Ltd.

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 ANSWER KEYS
GROUP - C
UNIT-I

Final Accounts of Sole Trade from of Organization

1. Give the adjustment entry if the item is (outside the trial balance) in the additional information.
Then treatment in Trading Account / Profit & Loss Account and Balance Sheet. Again if the
item is in trial balance, its treatment is only in Balance Sheet.

2. The provision made on net debtors (Total Debtors- Bad Debts) is called provision for bad
and doubtful debts. If some of the net debtors do not pay their dues in future then loss can
be recovered from this provision.

Then give the journal entries. The necessary ledger accounts are Sundry Debtors A/c, Bad
Debt A/c, Provision for Bad and Doubtful Debt A/c and Profit and Loss A/c.

3. Trial Balance is a statement of Ledger accounts prepared at the end of the accounting
period on a particular date. It tests the arithmetic accuracy of the books of accounts.

Balance Sheet is the statement of assets and liabilities prepared on a particular date at
the end of the accounting period. It reveals the financial position of the business.

Distinctions:

(i) Trial Balance shows two columns Debit and Credit, Balance Sheet shows two sides
' Assets' and ' Liabilities'.

(ii) Trial Balance is summary of ledger accounts. Balance Sheet is a summary of assets
and liabilities.

(iii) Trial Balance is prepared at regular intervals; Balance Sheet is prepared once at the
end.

(iv) Trial Balance is prepared before the final account; Balance Sheet is the last stage of
final account.

(v) Closing stock does not appear always in Trial Balance whereas closing stock always
appears in Balance Sheet.

4. Assets are classified as fixed and current; tangible and intangible and fictitious assets.
Liabilities are classified as long term liability (fixed liability), short-term liability, current
liability and contingent liability.

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5. Three alternative situations may occur:
(a) If goods are not insured.
(b) If goods are fully insured.
(c) If goods are partially insured (say 80%)
Give adjustment entry in all the three cases and then treat them in final accounts.
6. Gross Profit 15,950, Net Profit 14,000 & B/S Total 75,500.
7. Gross Profit 31,500, Net Profit 31,000 & Balance Sheet Total 77,000.
8. Gross Profit 2,27,000, Net Profit 1,69,500 & Balance Sheet Total 5,70,000.
9. Gross Profit 95,500, Net Profit 61,000 & B/S Total 2,70,000.
10. Gross Profit 97,000, Net Profit 72,500 & B/Sheet Total 3,39,900.
11. Gross Profit 18,240; Net Loss 12,825; Balance Sheet Total 2,80,830.
12. Gross Profit 27,305; Net Profit 21,205; Balance Sheet Total 68,505.
13. Gross Profit 41,200; Net Profit 41,100; Balance Sheet Total 1,16,500.
14. Provision for Bad and Doubtful Debts to be charged to P/L A/c 45,000, Sundry Debtors
to be shown in the B/S at 4,50,000.
15. Provision for Bad and Doubtful Debts to be charged to P/L A/c 2,500, Sundry Debtors to
be shown in the Balance Sheet at 19,000.
16. Reserve for discount on creditors 1,000 for 2019-20 was credited to P & L A/c and 100
was charged to P & L A/c for 2020-21.
17. Provision for Doubtful debts to be charged to P& L A/c 12,000, Provision for Discount on
Debtors to be charged to P/L A/c 1,900 and Sundry Debtors to be shown in the Balance
Sheet 93,100.
18. Balance Sheet is a statement of assets and liabilities on the closing day of the accounting
period. It is a summary of ledger accounts which are not closed by transfer to either Trading
Account or Profit and Loss Account.
The purpose of Balance Sheet is to show the financial position of the business.
A brief classification of assets and liabilities is to be portrayed and then discussion on
different items is to be made.
19. Financial Statements are the summary of the accounts showing the result of operations
and statements showing the financial position of a business enterprise.
The distinctions are to be made on the points of nature, objective, contents, period,
balancing, sides, manner of recording etc.

// 133 //
20. The entry passed at the end of the accounting period to close the nominal accounts by
transfer to Trading Account and Profit and Loss Account.
The closing entries for Trading A/c are:
(a) Trading A/c Dr.
To Opening Stock
To Purchases (Net)
To Direct Expenses
(b) Sales A/c (Net) Dr.
Closing Stock Dr.
To Trading A/c
(c) (i) For Gross Profit (Transferring)
Trading Account Dr.
To Profit and Loss Account
(ii) For Gross Loss transferring
Profit and Loss Account Dr.
To Trading Account
The Closing entries for Profit and Loss Account are:
(To close indirect expenses)
(a) Profit and Loss Account Dr
To Salaries
To Rent
To Insurance etc. (Indivisually)
(b) Commission received Dr.
Interest received etc. (Indivisually)Dr.
To Profit and Loss Account
(To close accounts of indirect income and gains)
(c) To close profit and loss account
(i) For Net Profit
Profit and Loss Account Dr.
To Capital Account
(ii) For Net Loss
Capital Account Dr.
To Profit and Loss Account

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21. Draw the 'T' shape proforma of both Trading and Profit and Loss Account. Show the items
on both debit and credit side.
Draw the proforma of Balance Sheet horizontally or vertically. Better give the horizontal
proforma in 'T' shape and show the assets and liabilities arranged either in order of liquidity
or in the order of permanence.
22. Goods used for personal use is drawing. Goods distributed as free sample and charity to
be recorded at debit side of profit and loss account. In all cases purchase account will be
credited. Refer to 3 marks question no. 32 and 33.
23. Refer to 3 marks question no 35.
24. Sundry Debtors ( as per trial balance) - Bad Debts (as per adjustment) - Provision for Bad
Debts (calculated as a percentage after deducting bad debts as per adjustment) - Provision
for discount on debtors (calculated as a percentage).
25. Refer 3 marks question number 1,2,3.
26. 31.3.2020 Profit and Loss Account debited 6,500; on 31.03.2021 Profit and Loss Account
credited 1,000.
27. Gross Profit 30,000.
28. Amount of depreciation machinery 50,000, Building 1,00,000, Capital Account
3,08,500.
29. Gross Profit 29,305, Net Profit 23,205, Balance Sheet Total 70,505.
30. Gross Profit 1,19,000, Net Profit 49,818, Balance Sheet Total 2,57,700.
31. Gross Profit 71,000, Net Profit 20,000 , Balance Sheet Total 2,72,000.
Unit -II
Accounting for Depreciation
32. Depreciation is the decrease in the value of fixed assets. It is charged to the income either
directly or indirectly.
The causes of depreciation are: wear and tear (use), passage of time, exhaustion,
obsolescence, accident etc.
The objectives of providing depreciation are to ascertain profit, to reveal true financial
position, to replace the fixed asset, to compute tax liability, to determine the cost of
production.
33. Depreciation is the allocation of depreciable amount of an asset over the estimated useful
life. It is measure of the wearing out, consumption or other loss of the value of depreciable

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 asset arising from use, effluxion of time or obsolescence through technology or market
changes.
The characteristics are : non-cash/ non- monetary expense, applicable to fixed assets
only, charge against profit, charged on fixed assets whether used or not, total amount of
depreciation cannot exceed the depreciable value of the fixed asset, the depreciable value
is cost price less scrap value, a process of allocation of cost calculated on estimated
basis, a continuous fall in the value of fixed asset till the total cost comes to zero.
34. A fixed percentage of the original cost of asset is written off during each accounting period
over the useful life of an asset.
Advantages: Simple and easy, same amount every year, value of assets reduced zero or
scrap value, suitable to leasehold property, patents, copyright etc.
Disadvantages: Based on the assumption of same utility every year, charge to Profit and
Loss Account increases year after year (depreciation + repairs and maintenance cost),
does not consider loss of interest on the amount blocked in fixed asset, does not provide
liquid fund to replace the asset immediately after useful life, difficult to calculate depreciation
subsequently when addition is made, method is not recognized by Income Tax Department.
35. Depreciation is calculated at a fixed percentage on the written down value every year. The
amount of depreciation goes on decreasing every year.
Advantages: Total charge (depreciation + repairs and maintenance cost) to profit and
loss account remains almost the same every year; method is logical; recognized by Income
Tax Department ; Fresh calculation of depreciation is not required at the time of addition ;
replacement of the asset due to technological change will not create problem.
Disadvantages: Value of assets cannot be reduced to zero, does not consider interest on
the investment cost on fixed asset, does not provide liquid fund for replacement of the
asset after its useful life, very difficult to calculate the amount of depreciation, takes a long
time to write off the asset.
36. Under this method depreciation is debited to Depreciation Account and credited to the
relevant Asset Account every year. The asset appears in the balance sheet every year at
its written down value. The depreciation account is closed by transferring to profit and loss
account very year.
The entries can be made for addition of new fixed assets, sale of fixed asset profit/ loss on
sale of fixed asset etc.
37. Under this method, provision for depreciation account is opened; depreciation is not a
direct charge against the asset. Throughout the lifetime of the asset, it is shown on the
asset side of the balance sheet at its original cost price. The provision for depreciation
// 136 //
 goes on accumulating till the end of the life of the asset. Commonly, the total provision for
depreciation will be more or less equal to the original cost of the asset. Provision for
Depreciation is shown on the liability side of the balance sheet at an increased value
every year.
The journal entries can be made for providing depreciation, transferring depreciation to
P & L A/c, transferring provision for depreciation account on sale of fixed asset, profit/ loss
on sale of assets etc.
38. Balance of Machinery Account 54,000.
39. Balance of Machinery Account 70,000.
40. Balance of Machinery Account 2,13,232.
41. a) (i) Balance of Machinery Account 8,19,000
(ii) Loss on sale of Machinery 10,000
b) (i) Balance of Machinery Account 11,00,000
(ii) Balance of Provision for Depreciation A/c 2,81,000
42. Under this method of depreciation is debited to Profit and Loss Account and credited to
Provision for Depreciation Account. The asset will appear in the asset side of the balance
sheet at its original cost. Provision for depreciation account appears in the liabilities side
of the balance sheet. At the time of sale of asset provision for depreciation account (relating
to asset) is transferred to asset account. Profit or loss on sale is transferred to profit and
loss account.
Difference between Depreciation Account and Provision for Depreciation Account:
At the time of charging depreciation account is debited and asset account is credited. But
under provision for depreciation, depreciation account is debited and provision for
depreciation account is credited.
Under depreciation method, at the end of the accounting year, depreciation account is
closed by transferring to profit and loss account. Under provision for depreciation account,
it is shown in the liabilities side of the balance sheet. At the time of sale of asset, it is
closed by transferring to particular asset account.
Under depreciation account method asset is shown at written down value in the balance
sheet. Under provision for depreciation method asset is shown at original cost in the balance
sheet.
Depreciation account does not appear in balance sheet. But provision for depreciation
account is shown in the liabilities side of the balance sheet.

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43. Balance on Machinery Account 1,65,000.
44. Loss on sale 6,000.
45. Machinery Balance 3,68,475.
46. Loss on sale of plant 5,73,781.
Depreciation 50,000, 47,500, 45,125, 42,869, 40,725.
47. Balance in Machinery Account 2,94,000.
Accounting from Incomplete Records
48. Records completed not as per double entry system of book keeping is called Single entry
system of book keeping.
Limitations: Arithmetic accuracy cannot be checked, true profit/ loss cannot be checked,
no internal check possible, not recognoised by law, difficult for audit work, planning,
controlling and decision making is difficult, difficult to ascertain the worth of the business,
goodwill cannot be valued accurately etc.
49. Characteristics: Recording personal accounts, maintaining cash book, no uniformity in
the system, suitable to small business, dependent on original vouchers etc.
Demerits: Refer to Q.48.
For meaning refer to Q. 48.
50. For differentiation refer to 2 marks Q. 74 and 3 marks Q. 55.
51. Refer to 3 mark Q. 56.
52. Steps:
(i) Find closing capital by preparing statement of affairs at the end of the year.
(ii) Deduct additional capital introduced from closing capital.
(iii) Add amount of drawings to get 'adjusted closing capital'.
(iv) Find out opening capital by preparing statement of affairs at the beginning of
accounting period.
(v) Deduct Opening Capital from adjusted closing capital' i.e. (iii) - (iv).
(vi) Make adjustment for interest on capital / drawings; proprietor's/partner's salary,
depreciation on fixed assets, provision for doubtful debts etc.
53. Opening capital 75,900, Closing capital 91,900.
54. Opening capital 51,800, Closing capital 49,100, Profit earned during the year 11,300.
55. Opening capital 1,63,800, Closing capital 1,86,400, Gross Profit 32,600, Net Profit
26,100.

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56. Opening Capital 93,000, Closing Capital 1,11,100, Profit 18,100.

57. Opening Capital 42,900, Closing Capital 48,000, Profit 2,100.

58. Opening Capital 7,70,000, Closing Capital 10,42,000, Profit 2,06,000.

59. Opening Capital 3,58,000, Closing Capital 6,10,000, Profit 2,25,500.

60. Opening Capital 15,61,000, Closing Capital 15,89,000, Net Loss 21,000.

Unit -III

Accounting for Partnership

61. The oral/written agreement among the partners is called the 'Partnership Deed'.

Important Clauses: Name of the firm, name and address of partners, place of business,
nature of business, duration of partnership, amount of capital to be invested by each partner,
profit sharing ratio, drawings limit of each partner, interest on capital, interest on drawings,
interest on loan, method of goodwill valuation, mode of settlement of account in case of
retirement/ death, dissolution of firm, maintenance of books of accounts, operating bank
accounts, arbitration clause to solve dispute, etc.

62. It is the 'relationship' between/ among partners to carry on the business and share profit on
agreed basis.

Features/ Characteristics: Two/more persons, agreement, lawful business, profit-sharing,

good faith, implied agency, no separate legal entity, unlimited liability.

63. Capital remains fixed but for recording changes, current account for each partner is
maintained.

Capital fluctuates as all the changes are recorded in capital account.

The changes in capital account are due to interest on capital, interest on drawings,
commission to partners, salary to partners, profit / loss in business etc.

64. Share of Profit: A- 39,000 ; B - 26,000; Capital: A- 1,02,600, B- 84,800.

65. Profit: A- 7,200, B- 4,800, C- 3,600; Current Account: A- 4,200 (Cr.), B - 1,300 (Cr.),
C - 1,100 (Cr.)

66. Goodwill is the present value of firm's anticipated excess earnings. It is simply, the reputation
of a business.

Nature: Intangible, no value attached, price is realized at the time of sale , helps to earn
higher profit, an attractive force, extra value attached to business, calculated on admission,
retirement or death of partners, no concrete method for valuation.

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67. Meaning - refer to Q. 66.

Factors: Nature of business, suitable location, greater managerial talent, degree of

competition, commitment to customers. Degree of risk, advantages of patents, profit trend,
market condition and other factors like general economic conditions, political stability,
government policy, money market conditions, trade cycle etc.

68. 3,16,800

69. 2,20,000

70. 4,00,000

71. Revaluation Account is the nominal account prepared at the time of change in profit sharing
ratio (retirement, death, admission of partners) to evaluate the assets and liabilities.

Difference from Memorandum Revaluation Account: In Revaluation account, value of assets

and liabilities are changed in Balance Sheet but no change in value of assets and liabilities
in Balance Sheet if Memorandum Revaluation Account is opened.

Revaluation Account has one part but Memorandum Revaluation Account has two parts. If
there is profit in Revaluation Account, it will be credited to partner's capital account and the
Memorandum Revaluation Account in 2nd part will show loss for the same amount and
debited to partner's Capital Account.

Entries of Revaluation Account are reverse in the 2nd part of Memorandum Revaluation
Account.

72. Refer to Text Book.

73. Profit on Revaluation 28,000.

74. Revaluation Profit: 1,650 - X's share 1,100, Y's share 550; Capital: X- 31,100; Y-
15,550; Z- 13,350, B.S Total 75,000.

75. Profit of Revaluation 2,300; Cash at Bank 20,700; Capital Accounts: A- 27,000; B-
18,000; C- 15,000; Balance Sheet Total 75,000.

76. Profit of Revaluation 640; Capital: P- 10,720; Q- 5,720; R- 4,000; Balance Sheet
Total 27,190.

77. For appropriation of divisible profit of the firm among the partners, agreement as per
partnership deed is to be considered. Interest on capitals, interest on drawings, partner's
salary, partner's commission, profit sharing ratio etc. are to be considered for appropriation
of profit.

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 In case of omission of any of the items in appropriation of profit, the distribution of profit will
be incorrect. So adjustment of partner's capital account is required to rectify the errors.
This rectification can be i) after the closing of the accounts and ii) before the closing of the
accounts.

Rectification of Errors after closing partnership accounts:-

Step 1 - Calculate the amount which should have credited on account of interest on capitals,
interest on drawings, salary, commission, profits etc.

Step 2 - Calculate the amount already credited on account of interest on capital, salary,
commission, share of profit and debit for interest on drawing.

Step 3 - Calculate the difference between amount of Step 1 and Step 2.

Step 4 - Calculate amount received excess and amount received short.

Step 5 - Pass the adjustment entry.

The entry is

Gaining partner's capital account Dr.

To sacrificing partner's capital account

Rectification of errors before closing partnership accounts- If errors are discovered before
closing the accounts such error must be rectified before closing the accounts. Explain with
examples.

78. Refer 2 mark Q. 117

79. Refer 2 marks Q. 122

80. Refer 2 marks Q. 126

81. X's commission 1,10,000, Y's commission 90,000. Profit X 4,50,000, Y 4,50,000.

82. Profit A 1,50,000, B 90,000, C 60,000.

Capital account A 5,00,000, B 3,00,000 , C 2,00,000.

Current account A 1,20,000 (Cr.), B 70,000 (Cr.), C 1,35,000 (Cr.)

83. Goodwill- Super profit method 4,00,000

Capitalisation of Super profit method- 20,00,000

84. Goodwill 8,00,000.

85. Goodwill 4,00,000.

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 1
86. A sacrifice 1/10 profit, B gain = Profit
10
1
Adjusted amount × 2,00,000 = 20,000
10
So for 2nd part A will be credited and B will be debited.

For 1st part- A and B will be credited in their old profit sharing ratio. A's capital credited
1,20,000. B's capital account credited 80,000.

87. The amount to be adjusted 1,20,000 - 30,000 = 90,000.

Sacrificing or Gaining ratio : A - 3/10 (sacrifice) , B- No effect , C- 3/10 (Gain)

Adjustment entry-

C's capital A/c Dr. 27,000

To A's Capital A/c 27,000

(Being adjustment entry for change in profit sharing ratio)

Unit -IV

Accounting for Companies

88. A company is an incorporated, voluntary and autonomous association of many persons in

business. It is having joint capital divided into transferable shares of a fixed value. It has
the features of limited liability, common seal and perpetual succession.

Features: Incorporated, voluntary and autonomous association, separate legal existence,

perpetual succession, common seal, limited liability, transferability of shares, separation
of management from ownership etc.

89. Total capital of a company divided into a number of shares of equal value is called share
capital.

Types of share capital: Authorised / Registration/ Nominal Capital, Issued Capital,

Subscribed Capital, Called up Capital, Uncalled Capital, Paid up Capital, Reserve Capital
etc.

90. Yes, the share can be issued at a premium, i.e. issued at a price more than its face value.

Utilisation of Securities Premium u/s 52 (2) of Companies Act 2013:

(i) Writing off preliminary expenses; or

(ii) Writing off the expenses, commission, discount allowed on issue of shares or
debentures; or

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 (iii) For issuing fully paid bonus shares; or

(iv) For providing premium payable on redemption of redeemable preference share or

debentures; or

(v) For buyback of Company's own shares and other securities as per section 68 of the
Companies Act 2013.

91. Section 53 of the Act prohibits the companies to issue shares at discount. Only Sweat
Equity shares can be issued at a discount u/s 54 of the Act.

Any share issued by a Company other than Sweat Equity share at discount shall be void.

92. Calls in Advance 2000, B/S Total 9,02,000.

93. Securities Premium A/c debited for 10,000 for 500 shares, Share Forfeited A/c (Cr.)
15,000 for 500 shares.

94. Capital Reserve A/c 21,000.

95. Capital Reserve Account 12,000.

96. i) No of equity shares to be issued at par 1,00,000.

ii) No of shares to be issued at premium 80,000.

97. Goodwill 1,00,000 (Excess of Sundry Creditors + Bills payable + Equity share over assets)

98. Capital Reserve 90,000- Balancing figure (excess of assets over liabilities and capital)

99. Total cash received 10,00,000.

100. Bank Balance 15,00,000.

***

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